US and European bioinformatics sales may be in the doldrums, but software vendors that have established sales channels in Japan say they are seeing relative — if not considerable — success. News of recent customer wins and distribution deals for several bioinformatics firms suggests that the Japanese market for bioinformatics software is not only healthy, but ripe for continued growth.
However, gaining a strong foothold in Japan is far more challenging than selling into the US and European markets. According to vendors BioInform spoke with recently, a clear understanding of the subtleties of the market and a focused strategy are vital for companies hoping to take full advantage of current promising market conditions.
“The bioinformatics boom that the US experienced two years ago is now being experienced in Asia,” said J Rollins, vice president of sales at InforMax. Japan, with around 40 pharmaceutical companies and a well-established academic and government research infrastructure, is easily the front-runner in the region, and has made a commitment to bioinformatics part of its broad life sciences spending agenda. The country had a national biotechnology budget of around 275 billion yen (US$2.4 billion) in FY 2000, 300 billion yen in FY 2001, and has budgeted 440 billion yen for FY 2002.
Demand for bioinformatics in Japan is driven by the country’s push to catch up with the US and Europe in the post-genomic game. Japan did not invest as heavily as other countries in genomics during the 1990s and is now accelerating its spending in proteomics, translational research, intracellular networks, and other areas. However, missing the boat on genomics has left the country short on trained bioinformatics professionals, so in-house software development is relatively rare and customers are forced to purchase more of their tools.
“Japanese customers don’t have ‘not-invented-here’ syndrome,” said Daniel Keesman, chief business officer at Lion Bioscience, which recently announced 20 deals it has accumulated since entering the Japanese market in the spring of 2000. Japanese firms are “more open to innovation from external sources,” agreed David Ricketts, vice president of business development of Inpharmatica, which just secured Daiichi Pharmaceutical as its first Japanese customer.
Crossing the Cultural Bridge
Most estimates peg the Japanese bioinformatics market at around 10 to 20 percent of the worldwide market, with current trends pushing that closer to the 20 percent mark and possibly beyond.
But obvious hurdles, such as the language barrier and time zone differences, as well as more subtle cultural gaps, make entry into the Japanese market a difficult prospect for many newcomers.
“Foreign companies view the Japanese market as a black box,” said Noriaki “Ray” Tsunoda, vice president of Accelrys’ Asia-Pacific operations. “The distribution system is different and there are unique customs and business practices that it may be difficult for companies from the US and Europe to understand.”
In addition, Japanese buyers tend to expect a higher level of customer care than their American or European counterparts, a resource commitment that smaller bioinformatics firms are not always able to provide. Japanese organizations will sign with vendors whose strategies are perceived to be in alignment with their own, and often see deals “more as partnerships than as vendor-seller relationships,” said Rollins.
The bar is also set higher for product quality. “Japanese customers expect zero failures,” said Alan Koontz, general manager, Pacific Rim, for Nonlinear Dynamics. Products with high failure rates simply won’t move, regardless of the level of service available. In fact, service contracts are “almost impossible to sell” in Japan, according to Koontz, because buyers simply see the purchase as “a pact with the vendor and a guarantee that it will work forever.”
In addition, the sales cycle in Japan is longer than in the US and Europe — generally a year to 18 months. Unlike US and European companies, which budget first and buy later, Japanese companies make their purchasing decisions prior to their budgeting process and then set aside the funding as part of the budget. The cycle doesn’t end until the budget is finalized, which can take up to a year. On the plus side, however, “once it’s in the budget, it’s almost a no-brainer collecting the order,” said Keesman.
Getting a Foot in the Door
Most companies find that the fastest route to overcoming these challenges is to hook up with a Japanese distributor. In fact, rule number one for bioinformatics firms mulling the Japanese market is “don’t even think about going there by yourself,” according to Rami Suzuki, a biotechnology and medical science analyst at ITX Corp., an IT and life science investment firm. Suzuki recommends approaching at least three different distributors before partnering with a company with similar business goals.
Distributors deal directly with customers in the Japanese language, and often have existing customers that can smooth the way for newcomers. However, cautioned Koontz, “if you’re a software company, then you have a particular interest in finding somebody who understands how to sell software as opposed to catalog products like pipette tips … Not every company that sells in this business understands the technology.”
Koontz also noted that the distribution system in Japan is actually a two- to three-level process. Distributors don’t necessarily sell directly to customers, but use a system of agents that work closely with their customers and get a small commission from each sale. The thing to keep in mind, said Koontz, is that “many distribution companies who sell competing products use the same agents.”
More advice from those who’ve been through the process includes finding a distributor with a diverse enough product line to be economically stable, but not so diverse that there’s a risk of losing focus on your product. In addition, said Suzuki, “be prepared to share everything with your distributor.” Some companies withhold information from distributors for competitive reasons, she said, which ends up limiting the distributor’s ability to sell the product.
Some companies opt for a mix of distributors and direct sales. Accelrys, for example, has beefed up its Asia-Pacific sales force from six to 44 people over the last year, and has set up a dedicated Tokyo office with the intention of phasing out most of its reseller agreements in the region. While the company still relies on distributors in some areas, the direct sales force is committed to selling only Accelrys products, Tsunoda said, and offers the opportunity to “provide faster service and a much more accurate response to customer questions and needs.”
Will the Boom go Bust?
Bioinformatics companies who have invested in the Japanese market to date are pleased with the results, but is the dip in the bioinformatics market that hit the US and Europe lying in wait for those companies who enter the Japanese market today? It’s possible, but not inevitable, observers said. While the relative boom in the Japanese bioinformatics market is two years behind that of the US and Europe, the fact that the country leapfrogged the genomics stage straight into functional genomics and proteomics may be to its advantage. Without the reactionary backlash that followed the perceived “failure” of genomics that occurred in the US and Europe, biotech investment in Japan is expected to remain strong. “Americans and Europeans aren’t so optimistic, but Japan is still trying to have a party,” said Suzuki.
Said Koontz, “Every trend, whether it’s a cycle or a dip, happens worldwide. It’s just a question of what the delay period is. Japan is the closest country in Asia to America in terms of cycle and we’re not seeing the slowdown in spending yet that we’ve seen in the US.”
Most observers noted that the broader Asia-Pacific region still represents a huge potential untapped market, with Singapore, Korea, and China as the next hot growth areas. Keesman said that Lion is in discussions with several distributors in the region and InforMax has already entered a strategic alliance with Sun Microsystems to provide GenoMax through Singapore’s Application Service Provider Center.
Ricketts noted that “people tend to be a bit bearish” about the downtrodden bioinformatics sector these days, but with the activity that vendors have seen in the region recently “this knocks it back to all the bears, I think.”