Governments require a vast array of goods and services to perform their duties, which makes it difficult to give a specific indication for specific products. Foreign companies are currently primarily active in the following sectors (value-based), but still have relatively small shares:
- Medical, dental, surgical and veterinary equipment
- Scientific apparatus and equipment
- Computer and related services
- Medicinal and pharmaceutical products
Foreign companies have thus far been almost completely absent from sectors such as public works and infrastructure.
While the public procurement market is currently almost completely dominated by Japanese companies, in fact only a very small percentage of Japanese companies are currently engaged in providing goods and services to the Japanese government. In 2013, only 1.2% of registered firms in Japan had obtained eligibility as a supplier to the government.
Also, 40% of government tenders are issued in the Kantou-Koushinetsu region, which consists of Tokyo and the surrounding areas. This is followed by the Kinki region (Osaka) and the Tokai-Hokuriku region, each with 12% of all tenders.
Forty per cent of all tenders issued are open tenders, which offer a level playing field. 16% are so-called ‘Open Counter’ tenders, for small-lot goods and services, together with limited tenders (zuii-keiyaku). This offers plenty of opportunities to compete on a level playing field.
Another indication of the opportunities present is the fact that, in many cases, there are only one or two bidders responding to an invitation to tender. According to analysts, many companies tend to focus on the largest government entities and are primarily active in the busiest season (February), or only in the Tokyo area. By taking the appropriate approach, this might allow new entrants to gain new business opportunities.
Source: NJSS public procurement information & analysis service
Challenges
Entering the Japanese public procurement market is not without its challenges, which in part explains the low percentage of foreign companies active in the sector. Peculiarities of doing business in Japan in general, combined with the characteristics of a public procurement system that is not accustomed to dealing with foreign entities, will require tenacity and patience. As with entry into any foreign market, it is vital to get to know your market and prospective customers; it is therefore important to invest in your local network.
Although not exclusively related to the public procurement market, you can expect to deal with the following challenges:
Language and access to market information
Public procurement market information is almost exclusively available in Japanese; a short summary of the invitation to tender is usually the only information available in English. Detailed information about tender specifications and the tendering process is only available in Japanese. Without Japanese language expertise, it can be difficult to develop your business case.
Your counterparts (procurement officers) will, in most cases, not be accustomed to communicating in a foreign language, particularly if you are dealing with regional and local government entities.
Standards and licences
Although many of the standards used in Japan have already been aligned with international standards, it will be necessary to gain expertise in the Japanese Industrial Standards (JIS) system, as these are often used in drafting tender specifications.
To supply certain products and services, such as medical services or construction works, additional licences are necessary. Mainly due to the language barrier, it will require some effort to obtain these licences.
Supplier qualification and organisational diversity
Although public procurement systems and procedures in Japan share the same basic characteristics, there is substantial organisational diversity, which makes it challenging to cover an entire sector. Japan's government institutions require suppliers to qualify before taking part in actual tendering, and no unified system exists. Although the application process is usually straightforward, it will be necessary to ascertain the qualifying conditions for each entity.
While there is a fair degree of standardisation of procedures at the central government level, with tender invitations published on joint portal sites, the picture is much more diverse for regional and local entities. In practice, your Japanese competitors will continuously monitor the public procurement sites of individual government entities likely to procure their products or services.
Local orientation
With the public procurement sector being an almost exclusively Japanese affair, in practice a large proportion of contracts are awarded to locally based companies that have established a presence as a supplier. In fact, public procurement plays an important role in cultivating local economic activity. In particular, for tenders at the local and regional level, which fall outside the scope of the WTO Agreement on Government Procurement, a local establishment is often added as a precondition.
Procuring entities often include (after-sales) service guarantees as one of the conditions in the tender invitation, which can in certain cases act as an obstacle for foreign-based suppliers and favour companies with local service networks.
Source: Lyckle Griek, Government Procurement in Japan. Obstacles and opportunities for European SMEs (EU–Japan Centre for Industrial Cooperation, March 2014)
The JTPP Helpdesk can help you deal with a number of these challenges by lessening language barriers and enabling you to gain a better grasp of the procedures and market circumstances.
Opportunities
Although numerous challenges exist, the very diversity and magnitude of the Japanese public procurement sector creates plenty of opportunities. European companies, including SMEs, have already been performing well in the field of advanced scientific and medical equipment. In particular, good opportunities exist for SMEs with innovative technologies to secure contracts with government entities, if the right approach is taken.
What is key here is that you can, to a large extent, create opportunities yourself. European SMEs that have been successful as suppliers to government entities in Japan have made efforts to develop knowledge of the market for their product and to conduct persistent lobbying activities with prospective customers.
Source: Lyckle Griek, Government Procurement in Japan. Obstacles and opportunities for European SMEs (EU–Japan Centre for Industrial Cooperation, March 2014)
