Episode #72: Business Contracts In Japan Aren't Worth The Paper They Are Written On

A friend of my mine has started his own consulting business recently and does Facebook Live updates to his growing band of devotees. I was watching one broadcast the other day when he was talking about always enforce the contract. He had signed a contract with his client, the situation changed and the client wanted to change the arrangement. Naturally, we are talking about the client paying less money than originally agreed. It was within the scope of the contract that the originally agreed money should be paid, because the changes fell outside the time limit for any alteration to the signed agreement.

My friend did relent and allow the buyer out of the contract, because he was told he would get looked after the next time. The person making this promise promptly left the company in short order and the replacement CEO brought in his own suppliers and my friend was out of pocket. Subsequently, his advice to his followers is always stick to what has been agreed and don’t let the buyer off the hook for the money.

I was thinking about whether I would agree with that advice for Japan? Western society, particularly the American business world is very litigious and so contracts become the income source of the numerous law firms there ready and able to enforce the contract in a court of law. I signed a contract to supply training services with a foreign corporation, where to my astonishment in the fine print it said I would agree to forgo the settlement of any disputes in a court of law. I thought lawyers were smart, but whoever drafted that clause was on drugs. Should we have a dispute, I wondered, how will they handle it, if we don’t agree? Pistols at 20 paces?

Japan is a country where domestic contracts are pretty much relative. If the buyer situation changes, then they expect the seller to recognise that and adjust the agreement accordingly. This usually means the seller getting less money or no money and having to wear it, to maintain the relationship with the buyer. Is everyone here in Japan ethical and won’t take advantage of you? No. Of course some companies will use this loose arrangement to suit themselves and say “to hell with the seller’s interests”. Of course Japanese companies who operate internationally are used to contracts being enforced, because they have deal with foreign entities who will go to court and so they have learnt to do the same thing.

If we take the big picture view, for the majority of cases, companies are ethical in Japan and they will not try and dud you for a short term gain. There is the problem of people moving around within the company every few years, as they rotate through the organisation. Your earlier flexible attitude may not be known to the new guy or gal and that creates a problem. Generally speaking though, Japanese companies are pretty good at doing handovers. Even if that vital piece of business intelligence was missed in the handover, the person you had the relationship with can usually be relied upon to reach out to their successor and put them in the picture.

My fear with my friend’s advice is that if you take a Western legalistic approach, rather than a more holistic approach, you will get paid for that one deal but that will be the end of the relationship. Japan is a country full of obligations. Japanese business people see business as a partnership and requests for the seller to be flexible for the buyer, are part and parcel of that world. Now there are plenty of countries where you would never dream of providing that flexibility, because they will skin you alive at the first whiff of weakness. Japan isn’t one of them.

The other side of Japan is you do get paid here. Yes, someone may not pay you at some stage in Japan, but it is very rare in mainstream business. Most terms of trade are thirty day payments and Japanese companies stick with that agreement. The slowest payers in Japan by the way are some of the biggest multi-national companies on the planet. These are major brands sticking it to the little guy because they can. You either take their 60 or 90 day terms or don’t do business with them. I hate this approach.

If you are playing a long game in business and we should all be playing the long game in Japan, then my advice is to be flexible and preserve the relationships above being strict on the terms of the agreement. You might get caught, but the chances are slight and the risk on the other side of the ledger is much higher.

We talk about “buyer beware” but “seller beware” is also good advice. Judge the scope of the business potential over the long term. What we call the lifetime value of the buyer. If you see that some flexibility now will result in a continuous streams of orders, then it makes good business sense to agree to their requests.

I am dealing with a huge multi-national company’s Japan team. They violated the terms of the agreement over cancelling scheduled, agreed training. I had every right to demand they pay, according to the agreement. I agreed to their request to overlook the penalty payment because I could see a lot more business coming our way. It has come, as we enter the second year of a lot of training being delivered for them. On the other hand, if it is a one off arrangement, then you may not need to be flexible. Instead, demand payment as per the agreement.

This is common sense in business and we have to judge each case by its own merits. This is important and we shouldn’t be rigid and have only one response about “abide by the contract or else.” Japan is all about the long term and relationships built on trust. Keep that in mind next time the buyer wants to vary the agreement.

Engaged employees are self-motivated. The self-motivated are inspired. Inspired staff grow your business but are you inspiring them? We teach leaders and organisations how to inspire their people. Want to know how we do that? Contact me at greg.story@dalecarnegie.com

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About The Author

Dr. Greg Story: President, Dale Carnegie Training Japan

In the course of his career Dr. Greg Story has moved from the academic world, to consulting, investments, trade representation, international diplomacy, retail banking and people development. Growing up in Brisbane, Australia he never imagined he would have a Ph.D. in Japanese decision-making and become a 30 year veteran of Japan.

A committed lifelong learner, through his published articles in the American, British and European Chamber journals, his videos and podcasts “THE Leadership Japan Series”, "THE Sales Japan series", THE Presentations Japan Series", he is a thought leader in the four critical areas for business people: leadership, communication, sales and presentations. Dr. Story is a popular keynote speaker, executive coach and trainer.

Since 1971, he has been a disciple of traditional Shitoryu Karate and is currently a 6th Dan. Bunbu Ryodo (文武両道-both pen & sword) is his mantra and he applies martial art philosophies and strategies to business.