The Invisible Wall: Why Japan's Unique Wholesaler System Blocks Foreign Companies from Market Entry
When one thinks of Japanese products, exceptional quality, attention to detail, and innovative technology are highly valued worldwide. Have you ever thought, "If only I could sell these Japanese products in my own country..."? Many foreign businesspeople are captivated by Japan's excellent products and technology, yet struggle with actual procurement and sales.
The primary reason lies in the lack of understanding of Japan's distinctive distribution system called "tonya" (wholesalers). This system may appear complex and closed at first glance, but by properly understanding and utilising it, you can acquire the highest quality Japanese products on a stable basis, making it a powerful weapon for expanding into your domestic market.
For example, a certain French lifestyle brand wished to incorporate traditional Kyoto crafts into their own products, but encountered walls in direct negotiations. However, by building a partnership with specialised wholesalers, they succeeded in establishing trust relationships with artisans and securing exclusive procurement routes.
Now, tonya (問屋) is a word that is difficult to translate directly into English. It represents a crucial element in Japan's unique distribution system, functioning beyond mere "wholesalers." Developed through a long history, tonya operate between manufacturers and retailers, not only distributing goods but also serving as multifunctional intermediaries who build trust relationships, guarantee quality, provide market information, and sometimes offer financial support. Deeply rooted in Japanese business culture, tonya form the core of a distinctive commercial system that emphasises long-term relationships and mutual trust.
"Tonya" (問屋) is a term that is difficult to translate directly into English. It represents a crucial element in Japan's unique distribution system, functioning beyond mere "wholesalers." Developed through a long history, "Tonya" operate between manufacturers and retailers, not only distributing goods but also serving as multifunctional intermediaries who build trust relationships, guarantee quality, provide market information, and sometimes offer financial support. Deeply rooted in Japanese business culture, "Tonya" form the core of a distinctive commercial system that emphasises long-term relationships and mutual trust.
This article introduces specific methods for effectively procuring and developing Japanese products and technology by utilising Japan's wholesaler system.
Barriers When Selling Japanese Products in Your Own Country
Even when captivated by Japan's exceptional products, various barriers stand in the way of selling them in your domestic market. Firstly, the most significant barrier is the difficulty of establishing connections with Japanese manufacturers and artisans. Many Japanese companies, particularly small and medium enterprises and traditional craft artisans, value long-standing business relationships and demonstrate a cautious attitude towards direct transactions with unfamiliar foreign companies. This is not a cold attitude, but rather a cultural cautiousness towards business with parties with whom trust relationships have not been established.
Next is the language barrier. Many of Japan's small and medium enterprises and artisans are unaccustomed to communication in English and have limited experience with international transactions. In situations requiring specialised conversations, such as detailed discussions of quality specifications and delivery schedule negotiations, the risk of misunderstandings increases.
Furthermore, the issue of minimum order quantities cannot be overlooked. Many Japanese manufacturers emphasise high-quality small-volume production over mass production, and may not be able to respond to the large orders sought by foreign companies. Conversely, when you wish to start with small quantities for test sales, there are cases where the minimum lots set by Japanese companies are too large.
The complexity of export procedures is also a major barrier. Many of Japan's small and medium enterprises have limited export experience and are unfamiliar with international logistics, customs procedures, and the preparation of export documentation. This often results in increased transportation costs and delays.
Moreover, the high quality of Japanese products is reflected in their costs. The careful selection of raw materials, skilled techniques, and attention to detail are reflected in product prices, which may exceed the price range acceptable in your domestic market.
Finally, the difficulty of customising products for local markets also presents a challenge. Products developed for the Japanese domestic market are tailored to Japanese consumer preferences in terms of design, size, and functionality. To adjust these to suit local market preferences and needs, close communication and mutual understanding with Japanese companies are essential.
It is precisely because such complex barriers exist that the utilisation of the "wholesaler system" explained next becomes the important key when selling Japanese products in your own country.
Introduction to the Wholesaler System: Japan's Unique System and Its Role
Japan's "tonya" (wholesaler) system is not merely an intermediary business, but a unique commercial distribution system with centuries of history. Unlike Western distribution models, wholesalers play important roles beyond the physical movement of goods.
Wholesalers are fundamentally businesses that stand between producers and retailers in their own name, intermediating the buying and selling of goods. However, their function does not stop at simple intermediation. They build deep trust relationships with manufacturers and assume roles as quality assurance providers, market information suppliers, financial support providers, and most importantly, "relationship-building intermediaries."
A characteristic feature of Japan's wholesaler system is its multiple-layered structure. For example, products may flow from manufacturers to primary wholesalers, secondary wholesalers, and then to retail stores. This multi-layered structure, which may appear inefficient at first glance, has actually developed to realise the meticulous service and stable supply unique to the Japanese market.
The value of wholesalers lies particularly in the following points. Firstly, they have relationships with producers spanning decades and hold access rights to products that are normally not open to outsiders. Many excellent Japanese artisans and small and medium manufacturers conduct business only through trusted wholesalers.
Secondly, wholesalers possess abundant market knowledge. The insights accumulated from years of experience regarding which products sell in which markets, what quality standards should be, and how pricing should be set are extremely valuable.
Furthermore, wholesalers provide flexible logistics functions. By responding to small lot orders and arranging consolidated delivery of products from multiple manufacturers, they contribute to the efficiency of international transactions.
What is important is that wholesalers function as "intermediaries of trust." In Japanese business culture, trust relationships are valued more highly than contracts. Wholesalers stand between you as a foreign company and Japanese manufacturers, providing peace of mind to both parties. For manufacturers, they guarantee your credibility, whilst for you, they fulfil the role of guaranteeing product quality and stable supply.
Historically, this system developed during the Edo period (1603-1868) and has survived whilst changing its form through the waves of modernisation after the Meiji period and post-war globalisation, continuing to serve as the core of Japan's commercial distribution even today. Even in the contemporary era of advancing globalisation and digitalisation, wholesalers continue to function as access gates to Japan's high-quality products.
The History of Japan's Wholesaler System: A Unique System That Developed as the Cornerstone of Commercial Distribution
Origins and Founding Period
The origins of Japan's wholesaler system can be traced back to the Kamakura period (1185-1333). During this time, merchants called "toimaru" emerged, comprehensively handling cargo reception, loading, and shipping functions. This can be considered the prototype of wholesalers in Japan.
From the Muromachi period (1336-1573) through to the Edo period (1603-1868), as commercial activities became increasingly active, wholesalers began to specialise by product. Specialised wholesalers handling specific products, such as rice wholesalers, oil wholesalers, and charcoal wholesalers, emerged throughout the country. These wholesalers not only intermediated products but also fulfilled diverse functions including storage, finance, and information gathering.
Development During the Edo Period
During the Edo period, Osaka became the commercial centre known as "tenka no daidokoro" (the nation's kitchen), where many wholesalers gathered. Later, Edo (present-day Tokyo) also developed as a centre of wholesaler concentration. Wholesalers formed trade associations called "kabunakama" and established exclusive trading rights.
During this era, wholesalers became indispensable as bridges connecting producers and consumers, and their capital strength and information capabilities held significant influence in the market. Particularly in the distribution of basic commodities such as rice and sake, wholesalers played leading roles in price formation and inventory adjustment.
Transformation in the Meiji Era
After the Meiji Restoration (1868), as Japan advanced modernisation, the wholesaler system also underwent changes. The Meiji government attempted to introduce Western-style commercial systems, but could not completely replace the existing system.
In the latter half of the Meiji era, with the development of manufacturing industries, consumer goods manufacturers aiming for national markets began to emerge. Domestic manufacturers such as Matsushita Electric (now Panasonic), Shiseido, and Morinaga & Co. grew, and these companies pursued nationwide expansion of their products whilst utilising existing wholesalers. Many manufacturers organised wholesalers as "general distributors" and "authorised dealers", advancing systematisation.
From the Pre-War Period to the High Growth Era
From the Taisho period to the early Showa period, manufacturers' power strengthened, and movements to vertically integrate wholesalers and retail stores advanced. However, wholesaler networks rooted in Japanese business practices and social structures were not completely dismantled.
After the Second World War, particularly during the high economic growth period from the 1960s, a major change called the "distribution revolution" occurred. New retail formats such as supermarkets emerged and challenged conventional distribution channels. However, these new formats often utilised existing wholesalers in forms adapted to Japanese market characteristics, and wholesalers maintained their position as the core of distribution whilst changing their form.
The Modern Wholesaler System
From the 1980s onwards, receiving waves of deregulation, informatisation, and globalisation, the role of wholesalers has changed once again. Amidst the increase in direct transactions by large-scale retailers and the advancement of distribution rationalisation through developments in logistics and information technology, wholesalers have evolved from mere "intermediaries" towards providing high value-added services such as specialised information provision, risk management, and inventory adjustment.
Particularly in specialised fields, wholesalers continue to play important roles. The "return system" in book distribution (a system allowing unsold books to be returned) is an example that symbolises the function of wholesalers in Japan's publishing distribution. Moreover, in highly specialised product fields, the specialist knowledge and sales channel development capabilities possessed by wholesalers have become indispensable for manufacturers and retailers.
Japan's wholesaler system should not be dismissed simply as "intermediate exploitation" or "inefficiency", but should be understood as a unique distribution system deeply rooted in Japan's socio-economic structure. Whilst changing its form with the times, its essence of "relationships" and "functional complexity" continues to live on in Japanese commercial transactions today.
The True Value of Japan's Wholesaler System That Many Overlook: Important Functions Beyond Mere "Intermediaries"
Japan's wholesaler system is often discussed as "inefficient" or as "barriers to entry", but this system, which has developed over centuries, possesses many advantages suited to Japanese market characteristics. Although it may be difficult to understand from a foreign perspective, there is rationality in the reasons why the wholesaler system has survived for so long.
Risk Distribution and Inventory Management Optimisation
Considering Japan's geographical characteristics (limited land area, high population density, frequent natural disasters), distributed inventory management makes more sense than large-scale centralised warehouses. Wholesalers exist distributed throughout the country and ensure supply stability by maintaining appropriate inventory levels.
For example, the "return system" in book distribution is a mechanism whereby wholesalers share risks between publishers and retailers. This enables even small bookstores to stock diverse books, contributing to maintaining the diversity of Japan's publishing culture.
Provision of Detailed Services and Market Information
One of the most important functions of wholesalers is the provision of services beyond mere logistics. They:
- Collect and analyse detailed information on regional markets and provide feedback to manufacturers
- Propose product knowledge and display methods to retailers
- Provide flexible delivery in response to changes in demand (in Japan, many stores receive daily deliveries)
- Provide informal financial support to small retailers (such as payment deferrals)
These services are indispensable particularly for small and medium-scale manufacturers and retailers.
Democratisation of Market Access
The wholesaler system provides market access to small-scale producers and retailers. Small manufacturers can realise nationwide expansion that would be impossible independently by utilising wholesaler networks. Similarly, small retailers can procure the same products as major retail chains at competitive prices.
Quality and Reliability Assurance
A characteristic of the Japanese market is the demand for high quality. Wholesalers not only distribute products but also conduct quality screening. In transactions based on long-term relationships, quality and reliability are emphasised, and this serves as one factor supporting the high evaluation of Japanese products.
For example, in newsprint transactions, wholesalers strictly manage paper quality and provide feedback to paper manufacturers. This "face-to-face competition" serves as strong motivation for product improvement.
Cultural Compatibility and Social Functions
The wholesaler system is deeply rooted in Japanese business culture:
- Harmonises with Japanese business culture that emphasises long-term relationship building and mutual trust
- Allows tolerance for ambiguity and enables flexible responses according to situations
- Enhances market stability through "win-win" relationships
Moreover, wholesalers fulfil social roles beyond mere economic functions. Their existence supports the diversity of small and medium enterprises and contributes to regional economic balance.
Implications for Global Companies
Foreign companies seeking to enter the Japanese market can gain competitive advantage by understanding the functions and value of the wholesaler system rather than viewing it merely as a barrier. By utilising existing wholesaler networks, it becomes possible to acquire market knowledge, build trust relationships, and adapt to Japan-specific consumer needs.
Wholesalers are "gatekeepers" of the Japanese market whilst simultaneously serving as effective "gateways" through appropriate approaches. Understanding the true value of this system can be said to be the first step towards success in the Japanese market.
The Wholesaler System: Benefits for Foreign Companies' Business Development in Japan
To foreign companies and individuals considering business or transactions in Japan, we introduce the specific benefits brought by Japan's unique "wholesaler" system. Wholesalers are intermediaries who buy and sell goods in their own name on behalf of others, and whilst often perceived as barriers to Japanese market entry, they actually offer many advantages.
Product Adaptation and Sales Strategy Optimisation
1. Utilisation of Market Knowledge and Local Networks
When Amy's Kitchen, Inc., an American organic food manufacturer, entered the Japanese market, it partnered with a Tokyo-based food specialist wholesaler. This company, headquartered in Petaluma, California, was established in 1987 by Andy and Rachel Berliner, and currently has annual sales of approximately $843.7 million and manufactures over 250 types of organic and non-GMO foods. Japanese wholesalers, with their years of experience, are well-versed in Japanese consumer preferences and regulations, and advised on adjustments to product packaging design and ingredient labelling. As a result, sales exceeded expectations by 30% in the first six months. Wholesalers possess deep understanding of the Japanese market and existing distribution networks, which would require time and cost for new entrants to build independently.
2. Streamlining Administrative Procedures and Regulatory Compliance
Haselmeier GmbH is a medical device manufacturer headquartered in Germany, currently operating as a division of the medmix Group. The company primarily engages in the design, development, and manufacture of self-injection devices such as pen-type injectors and auto-injectors, with over 100 years of history and more than 40 years of specialist experience in the medical device field. It provides products to pharmaceutical companies and biotechnology firms worldwide.
On 16th April 2024, Haselmeier GmbH formed a strategic alliance with Japan's Nipro Corporation. Through this alliance, Nipro became the exclusive sales agent for Haselmeier's "PiccoJect" auto-injector in Japan, with sales in the Japanese market scheduled to begin from the first quarter of 2025.
Many German medical device manufacturers like Haselmeier GmbH struggle with Japan's complex medical device approval process. By contracting with Nipro, a specialist wholesaler, Haselmeier GmbH became able to properly prepare and submit approval applications. In this way, wholesalers are well-versed in Japanese legal regulations and administrative procedures and support smooth market entry. This alliance is part of a strategy for Haselmeier GmbH to efficiently advance entry into the Japanese market by cooperating with partners familiar with Japanese regulations and procedures.
3. Product Adaptation and Sales Strategy Optimisation
LPR srl is an automotive parts manufacturer established in 1952 near Piacenza, Italy. The company specialises in manufacturing automotive brake components (discs, pads, shoes, CV joints, water pumps, hoses, etc.) and operates in over 90 countries. It was aiming to enter the Japanese market with support from the EU-Japan Centre.
LPR srl was unfamiliar with the high-quality standards specific to the Japanese market and trading practices with automotive manufacturers, but overcame these challenges by making contact with two Japanese sales agents and building cooperative relationships. Through specialist wholesalers, negotiations with Japanese automotive manufacturers proceeded smoothly, and the company was able to acquire concrete business opportunities such as joint venture establishment proposals and parts supply to Japanese automotive manufacturers. Through cooperation with these wholesalers, adjustment of product specifications suited to the Japanese market and negotiation of trading conditions were streamlined.
On the other hand, Tesla, Inc. is an automotive and clean energy company headquartered in Austin, Texas, United States. It designs, manufactures, and sells electric vehicles, stationary energy storage systems, solar panels, and solar roof tiles. Tesla, Inc. began sales in Japan in May 2019 and, in addition to its collaborative relationship with Panasonic in battery development and supply, addressed Japan market-specific challenges by utilising domestic specialist trading companies.
Tesla, Inc. fundamentally follows a direct sales approach, but in the Japanese market faced challenges of product proposals suited to consumer preferences and needs, and the popularisation of electric vehicles in a market where hybrid vehicles are mainstream. By cooperating with specialist trading companies, it became possible to understand Japanese consumer psychology and address concerns about local electricity circumstances, which also led to more efficient showroom operations. Through this collaboration, Tesla, Inc. has steadily built its foundation in the Japanese market, selling approximately 8,300 units in Japan by January 2022 and expanding to six showrooms nationwide.
Practical Approaches: Methods for Building Relationships with Wholesalers
Building relationships with Japanese wholesalers should be viewed as long-term partnerships rather than short-term transactions - this is the key to success. Below, we introduce practical steps for effective relationship building.
First, begin by finding appropriate wholesalers. Industry exhibitions (such as Tokyo Gift Fair and FOODEX JAPAN) are excellent opportunities to meet wholesalers. Moreover, the Japan External Trade Organization (JETRO) and various countries' chambers of commerce in Japan also support matching with wholesalers. Introductions from companies in the same industry already active in Japan (non-direct competitors) are also highly effective.
In initial contact, share your long-term business vision. Japanese wholesalers value long-term relationships with growth potential over one-off transactions. It is important to sincerely communicate your business plan, market positioning, and why you are interested in Japanese products.
Regarding communication, it is important to recognise and address language barriers. If possible, employ staff who can speak Japanese or secure reliable interpreters. In meetings, prepare detailed materials in Japanese and strive for clear communication that avoids ambiguity.
Patience is necessary in the relationship-building process. Japanese wholesalers carefully consider new partnerships. It is not uncommon for several months to pass from the first meeting to concrete business negotiations. Understand that this time is an essential process for building mutual trust.
Regarding trading conditions, it is important to demonstrate a flexible attitude in the initial stages. Rather than demanding large orders or special prices from the outset, begin with small-scale transactions and build up a track record. An attitude that respects the standard trading conditions presented by wholesalers (payment terms, minimum order quantities, etc.) becomes the foundation for future negotiations.
Cultural aspects cannot be overlooked. By understanding and respecting Japanese business practices (business card exchange etiquette, gift-giving customs, hierarchical decision-making processes, etc.), relationships with wholesalers will advance significantly. Attention to detail is highly valued by Japanese business partners.
Finally, relationships with wholesalers should be based on a "win-win" spirit. Rather than one-sided demands, strive for proposals that are valuable to wholesalers as well (guaranteeing stable order volumes, providing new market development opportunities, etc.). Mutually beneficial relationships form the foundation of long-term partnerships.
This relationship-building process requires time and effort, but once trust relationships are established, you will acquire stable access to Japan's high-quality products and gain significant business opportunities.