NEW YORK, Nov 20 - As Western genomics companies expand their market reach, they are increasingly looking east for market opportunities. And high-tech Japan, which committed $3 billion to the biotechnology sector in fiscal year 2000, seems like the most natural fit for many.
“We think the Japanese bioinformatics market represents about 10 to 15 percent of the world-wide market,” said Keith Elliston, CEO of Viaken, the bioinformatics hosting company that just announced a partnership with Sumimoto’s new subsidiary SC Biosciences.
But Western companies know they can’t just sail into Japan like Commodore Perry. They must carefully navigate through a business culture that seems alien to Western ways and deal with added difficulties in sales and support.
While some choose to go it alone, most genomics companies are finding that a partnership with an established Japanese company is the most efficient way to break into this burgeoning market.
“Having a local partner that has an enormous amount of current prestige in the marketplace pays dividends across multiple parts of the business,” said Nanogen CEO Kieran Gallahue, who negotiated a 10-year deal between his company and Hitachi. “It pays dividends in understanding the regulated market [for products]; it pays dividends in access to premier customers. In general the business becomes a more efficient mechanism.”
Though it may be a business cliché, cultivating relationships is still the key to doing business with a Japanese client. And genomics companies are finding their rapidly exploding sector is no exception.
“Japanese companies take the time to get to know the people and the nature of a company before they make a commitment,” said William Burton, vice president of corporate development at Sequenom, which recently sold one of its $1.1 million MassArray systems to Hitachi. “You can’t just sit down and have three flurried rounds of negotiations where you hammer things out. The positive thing is, when you have those relationships established, they are quite durable.”
Business deals in Japan can be slowed by the general consensus approach many Japanese companies take. They will watch a technology very closely and then try to come to a unanimous agreement as to which technology they want to adopt, said Burton. “As a consequence of this process, it takes time,” for a company to decide whether to buy a certain product.
Sequenom learned these lessons the hard way, while navigating through endless rounds of meetings with different layers of management before getting to the deal itself.
Sales and Support Solutions
By collaborating with local partners many genomics executives say they can better handle the challenge of increasing sales and providing support in far away Japan.
“Deployment of [bioinformatics] tools has not been amenable to the marketplace in Japan because of the lack of experienced bioinformatics professionals on the ground in Japan,” said Elliston. “Companies might increase software costs to Japanese customers by 30 percent just to cover the increased costs of supporting them in the market.”
Viaken is trying to turn this potential liability into an asset, by providing Japanese companies with hosting and support services for a variety of Western bioinformatics programs, including Spotfire’s Array explorer and Informax’s Genomax.
Western companies face an additional barrier in the country’s complex web of marketing relationships, Ellliston said. Instead of representing one manufacturer, a marketing representative in Japan can represent several manufacturers within a certain area. To market a new product in this area, a representative must gain permission from the other sales representatives based in the same area.
This is why Viaken chose to partner with SC Biosciences, the life sciences subsidiary which Sumitomo, Japan’s $130 billion trading giant, is officially launching December 4, Elliston said.
Nanogen has gone a similar route, signing a 10-year deal with Hitachi to have its Nanochips manufactured in Hitachi’s Japanese chip factories and signing Hitachi as the exclusive distributor of its products in Japan, even though Nanogen held on to distribution rights for the rest of the world.
The partnership model worked well for Nanogen, according to Gallahue, because it allowed for a long deep working relationship, but also gave Nanogen the clout provided by the Hitachi name, as well as Hitachi’s know-how within the Japanese market.
“We are just beginning to commercialize a product with Hitachi,” said Gallahue. “We concluded that the best way to reach [the Japanese] market is to partner with a company with an established local reputation and an established infrastructure both from the sales and support perspective.”
Even some large global companies with Japanese subsidiaries adopt some form of the partnership model. Packard’s Japanese subsidiary, for example, partners up with well-known distributors in the country. In order to survive as a foreign company in Japan, “you have to have a link to a major player in the Japanese pharmaceutical market, or go through an established distributor or marketers,” said Dile Holton, business development manager of Packard Biochip technologies.
APBiotech KK, Amersham’s Japanese subsidiary, on the other hand, markets its microarray programs, the Megabace 1000 DNA analysis program, and Gene Logic’s GeneExpress suite directly to potential Japanese customers, according to Keiko Hattori, president of Amersham Pharmacia Biotech KK. But this subsidiary has a half-billion dollar multinational company behind it, and has been in Japan for a long time. APB originally did have a Japanese distributor, but over an eight year period of time established its own presence in Japan.
“If you or your company is totally alien to Japan, it may be easier for you to partner with a Japanese company and then establish a Japanese subsidiary,” said Hattori. “Time differences and language barriers always make customer support harder if a company doesn’t have a set-up in Japan.”
Sequenom, one of the few companies to venture directly into Japan for its first sales, is now also looking toward the partnership model, said Burton.
“We intend to structure a partnership with a Japanese company for the large-scale sales and marketing and support of the companies products,” he said. “Selling directly is both costly and nominally effective.”