Meet the new paradigm: network marketing in Japan; Can American-style marketing work in Japan?

ONE NIGHT IN EARLY June, over 20 curious Japanese and foreign audience members gathered in the second-story meeting room of Nikken Japan's Akasaka headquarters in downtown Tokyo. The videoconference receiver beeped with an incoming call from Toronto, Canada. Our business mentor was online and waiting.

**********

LINDA AND BOB PROCTOR, our partners in this undertaking, launched into an introduction of the Nikken business opportunity in English. Despite our assurances that the prospects could understand English, we watched as some people were gradually lost during the 30-minute presentation. The Q & A session lagged so seriously that an interpreter was required, and there were more than a few awkward silences in places.

[ILLUSTRATION OMITTED]

[ILLUSTRATION OMITTED]

We wondered if we had made the right choice in holding our first event in English over the videoconference medium. However, after the completion of the call, four or five guests stayed afterwards for product demonstrations or individual consultations, yielding very promising results. In the end, we declared the event a success, knowing that we would still have to refine this business tool a bit further in order to make it successful in Japan.

A different path

Can American-style Network Marketing work in Japan? This is a question my wife and business partner, Wendy Jonas Imura, and I have asked ourselves many times over the last six months, after starting on this unique journey. Our decision to make a change was based on an idea from Robert Kiyosaki's financial literary classic, Rich Dad, Poor Dad: The new economy pushes people from old paradigms into new ones.

In the old paradigm, a good education and stable employment at a major company guaranteed a stable income and a comfortable retirement plan. The current Japanese educational system and society suggest that this is the path for everyone.

However, as people have come to realize, the old paradigm is actually based on a big lie. Japanese companies now hire and fire at will, making job security a thing of the past. With the crumbling pension system, individuals must look out for their own financial needs as they age.

The reality of a new paradigm became apparent to us, and we knew we had to make our own path.

We decided to quit our corporate jobs and focus on developing our own businesses. Our new path and paradigm required a new vehicle: multiple sources of income providing security and stability. We investigated a number of paths or vehicles that could have provided us with multiple sources of income or passive income, including real estate, the stock market, franchising and other options.

However, while these opportunities were promising, they required a large initial investment of money, skills and time at a level we were not yet prepared to invest.

Then a friend introduced us to network marketing, an opportunity initially passed over by many people because they do not understand the structure or system adequately. When we first took a look at network marketing, we studied its structure, which is often misunderstood.

What we found was that the term "network marketing" (sometimes called "multi-level marketing" or direct sales) simply refers to a product or service distributed directly from a company to consumers.

While most companies choose to distribute products using traditional in-house or external sales routes (retail sales locations, wholesale sales routes, sales staff, television or catalog sales and/or an Internet presence), network marketing companies use a network of independent distributors, who then purchase the right to distribute the company's products for promotion and distribution.

Independent distributors market and sell the company's products using word-of-mouth, independent sales tools or other methods. Successful network marketers also recruit, train and motivate other distributors in teams and multi-level organizations. Distributors are rewarded for their sales both through a percentage of retail sales and by leadership incentives designed to activate organizational growth.

A true network marketing company provides both types of incentive (for real retail sales and organizational growth) to its distributors, distinguishing it from a multi-level scheme, which provides payment only for signing up further levels.

A growing industry in the US

After understanding the business structure, we began to look into the background behind network marketing, especially in the US. We discovered that network marketing was a business with some history, having started in the 1940s, when Nutralite Products, Inc. began sales of nutritional supplements.

The business is also large and growing. Annual sales in network marketing were $28.69 billion in the US alone for 2002, with 13 million distributors. Some 55 percent of the American public bought goods via direct sales during 2002, according to the United States Direct Selling Association (DSA, www.dsa.org). Globally, some $85 billion in products and services are sold via direct sales.

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

Network marketing on a whole new level

Convinced that the business structure was sound, and the industry itself viable, we then proceeded to the next logical step: identifying those who were successful in the business. While more than 90 percent of distributors for various companies operate their businesses part-time, according to the DSA, a major factor promoting the success of network marketing companies in the US since the mid-90s has been the involvement of a class of professional and entrepreneurial owner/distributors, taking NM success to a whole new level.

Many of these individuals have achieved millionaire status, consistently earning six-figure incomes with the help of their large organizations numbering in the tens of thousands. A number of high-profile motivational speakers, coaching professionals and businesspersons (or their spouses) have all found network marketing to be a "business of choice," attracted by its low risk, low initial investment and virtually limitless earning potential.

Looking home: network marketing in Japan

Having found our chosen business vehicle, industry and model for success, we then looked homeward. How did network marketing look in Japan?

The launch of Tupperware home parties in Japan in 1963 marked the start of network marketing in Japan. During the 90s, a number of large American companies entered the Japanese market with some success, including NuSkin, Herbalife and others.

The Japan Direct Sales Association shows industry sales of [yen]28.75 trillion for 2002, with the top sales categories including cosmetics, nutritional products, cleaning supplies and underwear. Despite these successes, network marketing as a whole remains less well known and has a smaller market scale compared to the United States.

In the unique, salaryman-dominated culture of postwar Japan, a stable corporate job is viewed more favorably by the middle class than small business ownership. Entrepreneurship still has along way to go in Japan.

That said, Japan is our home, and the launching ground for our business. While challenges may exist, we resolved to press forward, hoping the right combination of business and mentor might make the difference.

A vehicle and mentor found

Having found our chosen vehicle, industry and target market, we were then faced with the challenging decision of choosing a company to represent. After examining a number of opportunities (from single-product distributorships of faddish health drinks to a discounted telephone service distributorship), a friend from Canada introduced us to Nikken. Immediately, we recognized Nikken as something unique and promising.

First, Nikken has a strong bilateral US-Japan connection, a very attractive element for us. A Japanese company founded in 1975 in Kyushu, Nikken distributed its magnetic health-care products through a traditional wholesale dealership network in Japan until the late 80s. The company branched overseas, but had limited success through traditional sales routes, and turned in desperation to network marketing.

Business exploded, taking the company to $1.5 billion in annual sales in a little more than 10 years. Now head-quartered in the US, Nikken offered us the ability to do business in Japan, the US and over thirty other countries.

Second, the company has a healthy mix of unique durable and consumable products. Over the years, the products offered at the center of network marketing opportunities internationally have shifted from simple consumable goods, such as "potions and powders," to more value-added products such as cosmetics and nutritional supplements. Nikken's core products are all in the fields of health and wellness--an estimated [yen]30 trillion market, in terms of medical expenses. With an estimated 30 percent of the Japanese national government's expenditures devoted to medical care, and Japan's aging population and declining birthrate, Japan is in a prime position to begin seeking alternative or preventative methods of healing and treatment.

Finally, the company was solid and trustworthy. The company's 5A Dun and Brandstreet credit rating and debt-free status identified it as financially stable, while the solid back-office support and money-back guarantees on products eased any concerns we might have had regarding operations. After a month of due diligence and a meeting at the Tokyo Headquarters with Nikken corporate staff, we were duly sold.

Now we need a partner

Getting started in a network marketing distributorship often requires that one be "sponsored" by another distributor. In our case, our Canadian friends could not sponsor us internationally, so we were forced to either find a sponsor within Japan, or find an international sponsor of sufficient rank within the organization to sponsor us.

We took to the Internet, and after a few hours found a likely prospect: Linda Proctor. Proctor boasted both a large organization (over 10,000 persons) and an international base, doing business with Nikken in 18 countries. With her experience in supporting and opening new markets, we knew she would be the perfect successful partner for our venture. An email and several teleconferences later, we had found our partner.

Getting started-an American-style launch in Tokyo

It quickly became clear after our initial teleconferences with Proctor that we were dealing with someone who did business on an entirely different scale than the neighborhood Avon lady. She was scheduled to make a trip to Australia and New Zealand to work with her organization, or "downline" in network marketing parlance, in those countries, and offered to add a visit to Japan to help us launch our Nikken business in Tokyo.

She told us to get started right away, not by immediately approaching friends or family regarding the opportunity, but to begin studying and cultivating a list of prospects. Our prospects should meet two criteria: a good work ethic and ambition. Preferably, they would also be motivated, professional and successful in their areas. Proctor also advised that we should look to the long term: gather eight to 10 team members who would be keys to building a global wellness business.

As Proctor explained, the truly successful people in network marketing--the millionaires' club, if you will--treat it as a business from the beginning. As such, she advised us not to focus on retailing product or random prospecting, but to begin approaching persons with whom we would like to do business, as part of Proctor's Japan "Nikken Global Business Team."

We had roughly a month to prepare for Proctor's five-day visit to Tokyo. While the Nikken Tokyo office had scheduled several functions for the period as well, the remaining time was ours to fill with one-on-one meetings and perhaps even larger events. As with any undertaking, there were some initial stumbles.

The first challenge was simply finding time to meet with people. Both my wife and I were still working full-time at this point, as were most of our contacts. Owing to the busy pace of Tokyo life, sometimes it would take a week or more to even get a return call, much less schedule a meeting. The time dilemma was also a factor in getting people to consider a part-time, home-based business: most salarymen are simply not home for any period of time to begin with.

Another challenge was the pervasive "salaryman" mindset. Most Japanese professionals, while regretting their long work hours, are addicted to the artificial security their positions give them. Even if they are extremely dissatisfied, most people are unwilling to take action to change.

A third challenge was conformity. In Japan, it's common for everyone to follow the same path. Network marketing presents an alternative to the salaryman path, challenging the traditional structure of Japan.

Our final challenge was our own inexperience. Frequently, we approached the right people with the wrong information, or worse, the wrong people altogether. If you talk to any network marketer in the business for any length of time, they will tell you that rejection is part of the business.

Proctor, however, broke it down further. When approached with a network marketing opportunity, people can give one of five possible reactions: answer "no," "not yet," or "not for me;" become a retail customer ("I'd like to try a product;" become a wholesale customer ("I like the products enough to sign up with the company for a discount;" become a part-time distributor; or become a business builder.

Although we found ourselves in the last category and were seeking others, it rapidly became apparent that most persons we approached would not fall into that category with us. Learning to improve our presentation and develop responses for the first four reactions was a must.

The launch

After four weeks of preparation, we were ready to welcome Proctor to Tokyo. We had tried various methods to gather people, such as advertisements in local English media and online, but in the end, the old-fashioned personal invitation was most effective.

We set up 10 one-on-one meetings with both foreign and Japanese prospects, plus several larger "networking" gatherings. Watching one of the organization's top leaders at work was like a compressed, five-day mini business school. In addition to presentation skills, Proctor coached us on our overarching vision, goal-setting, the fundamental structure of a successful organization and tips for professionally presenting the opportunity. Most of our one-on-one meetings were spent simply listening.

Changing business as usual

One of the most telling events illustrating the differences between the accelerated American style of network marketing and "business as usual" in Japan was a presentation Proctor gave to Japanese wellness consultants (distributors) at their Tokyo headquarters. The talk focused on the distinct difference between building a business and trading time for money.

"There are three ways of making money in the world," says Proctor. "M1, or trading time for money through labor, M2, or investing money, or M3, building your own business. The M1 group can include anyone from plumbers to physicians, or 96 percent of the population. M2 includes professional investors, at 3 percent of the population--but this route requires a higher start-up capital. Finally, M3 wealth builders account for only 1 percent of the population, but generate the lion's share of income."

Network marketing, with the right opportunity, offers people a chance to earn M3 income with a low initial investment. This business-focused presentation, coupled with the outline of a simple business model that would allow distributors to quickly recoup their initial investment, struck the audience like a bolt of lightning. This was something totally different.

In the three and a half years since Nikken's reintroduction to the Japanese market as a network marketing opportunity, momentum had not reached the scale seen in North America. Business had been built on the back of retail sales and personal relationships between consultants, as opposed to a pure business-building perspective. Many of the distributors, while successful retailers, had a hard time approaching Nikken as a business.

Thus, a simple and effective presentation from a successful female North American business builder in Tokyo, and in Japanese (thanks to the interpreter), gave a noticeable charge to the crowd. In addition to being for our own benefit, Nikken signed up several driven business builder distributors that night as a direct result of Proctor's presentation.

On our way

Proctor's visit ended successfully, with several promising leads and a much greater understanding on our part. Inspired by her generous gift of time, we decided to commit ourselves to reaching the first "leadership level" within our organization within two months. The rank, which required a substantial monthly sales total as well as the recruitment of several qualified distributors, is the first major step toward developing a larger business. In the end, it took us three months to achieve this level through a combination of recruitment and sales activity.

In addition, our introduction to Nikken was the start of something larger for both of us. Previously employed at large Japanese corporations, both my wife and I had desired to leave behind the rat race, long commute and stress of Tokyo corporate living. Our start with Nikken opened up our thinking to other possibilities for growth.

[ILLUSTRATION OMITTED]

In the end, after much planning, we decided to incorporate the Nikken business, my wife's translation and interpreting business and several other projects into one large umbrella corporation, which would employ us. The goal was to both provide us with a corporate vehicle to house our businesses, making it easier to conduct operations in Japan, and to provide a way to better utilize the tax benefits available to small business owners.

We started saving the [yen]3 million seed capital to form a yugengaisha, or limited company under Japanese law, and also began preparing to leave our full-time jobs. The technicalities and procedures took an additional several months, but finally, on June 15, 2004, Occams Inc. was officially established.

We took the name for our company from the 14th century British philosopher William Occam, a mathematician whose most famous theorem is named after him--Occam's Razor. In a nutshell, it means "the most effective solution for a complex problem is often the simplest solution."

A good example to illustrate this concept is the following question: "Which is easier: selling 10,000 widgets to 10,000 people, or finding one person who can buy 10,000 widgets?" Our aim is to have the services that our company offers--be they translation, interpreting, network marketing, or other ideas--be fundamental, simple and effective. In short, we aim to either find the 10,000-widget buyer, or be that buyer ourselves.

Going forward in Japan.

Our view of implementing North American-syle network marketing in Japan is best described by our company's ten-year vision: creation of wealth in 100 countries around the world by the year 2010. Accordingly, our vision is simple: using accelerated, business-builder oriented techniques in Japan and other countries to build a multi-national business through the Nikken vehicle, helping as many people as we can in the process.

By the words "helping people," we mean creating the environment and opportunities for people to enjoy a more fulfilling life, both personally and professionally. We are continually seeking strategic partners, at either the corporate or individual level, who might share this vision in countries all over the world.

As for network marketing in Japan, we do feel that change is afoot. With continued exposure to professional, entrepreneur/business-owner distributors who have downlines in Japan, and the increasingly global nature of network marketing companies, more Japanese distributors are likely to choose to expand their businesses outside of Japan. Likewise, the wealthy and aging Japanese population remains an attractive lure to many Westerners seeking to do business abroad. In some cases, the methods used must be adapted to local customs and business needs, and in certain areas, we are still searching for just the right way to adapt techniques to the Japanese market. However, with a fundamental vision for business building and a proven business model in place, we believe that success is only a matter of time.

Yusuke Imura is CFO of Occams Inc.