22 May Japan is an Iceberg
Japan Trip Report by Tegan Bathgate
A ten-minute read about how diagnosing needs has created a strong market access arrangement between Australia and Japan, with observations from the AICMJ Key Market Tour, February-March 2018.
Not too long ago, in a cold land named Victoria, study of a unit titled ‘Negotiation’ for third year agribusiness studies eventuated. Though this surprisingly profound curriculum brimmed with useful information, there were two points worth sharing. These worthily form the foundation of this review.
- In any negotiation – trade business deals, or resuming control of the television remote – one party is seeking to influence another in some way; and
- Every party has needs. An insightful analogy to further explain these needs, is to imagine an iceberg. The bright, probably snow-covered part above the water represents stated needs – the needs that are spoken, or clear to ascertain. However, (as one might expect) there is another concealed, intangible part below the water line, which represents unstated needs. These needs may not be obvious, or shared openly, and may require deeper probing to identify, but they motivate a party to respond to another in a certain way.
This iceberg theory helps to understand other parties: why they come together to negotiate, as well as influence the process to reach better agreement (Hudson, 2018). Hence, Japan is an iceberg. Although so is Australia by these parameters. To recognise that both Japan and Australia have needs – stated and unstated – one can better understand their influences in establishing and sustaining trade. This results in market access that benefits both countries in the long term. In this 21st century, constantly changing, global landscape – market access is an eminent priority. It is vital for any country to thrive and prosper in today’s hyper-connected, global economy. It encourages economic competiveness by (in simple terms), opening more trade opportunities, promoting profitability, and initiating growth – both micro- and macro-economically. The market access arrangements between Japan and Australia today are a clear testament to how effective negotiations can to meet the needs of both parties.
For decades, Japan and Australia have maintained a significant, two-way, trade partnership. Australia trades natural resources and food in exchange for various machinery and equipment, technology and processed resources. During last financial year (2016-17), 18% of Australia’s total exports by value (mostly natural resources and beef), went to Japan – appointing it Australia’s 2nd largest export market (The Australian, 2018). Japan alone took nearly a third (29%) of Australia’s entire beef exports in 2017. Inversely, Japan is Australia’s 3rd largest source of imports, after China and the U.S. In light of this it is interesting to consider, Japan is the equivalent of approximately 5% of Australia’s land mass – but with over 5 times the population (DFAT, 2018).
The negotiated market access today is dynamic, mutually-beneficial, and a mature engagement. Emerging from trade restriction in the 1850s, Japan swiftly adopted market advances, and first imported Australian coal in 1865. This began a somewhat rocky alignment, over the years disputing protectionism, immigration, security, trade, war, and ideological differences. Despite these externalities, diplomatic relations have arisen (particularly in the last seventy years): co-operating in regional forums, defence, trade, ethical and social agendas (Parliament of Australia, 2018). Within close proximity, both have valuable resources to sell that fill the economic gaps of the other – so the differences between the countries are actually complementary – each wants what the other has.
Former Australian Prime Minister, Tony Abbott, famously named Japan ‘our closest friend in Asia’ (Kenny, 2013) before endorsing a bilateral free trade agreement in 2014 – the Japan-Australia Economic Partnership Agreement (JAEPA). This favourable deal was like a big hug from Japan, having been described as ‘by far the most liberalising trade agreement Japan has ever concluded’ (DFAT, 2018). For beef producers and exporters, JAEPA delivers ‘unprecedented competitive advantage’ (DFAT, 2017). A number of multilateral agreements and organisational memberships also support the trade relationship (DFAT, RMAC, 2018). Under these deals, tariff rates importing into Japan will agreeably drop nearly 70% in the next 15 years (down to 9%), while tariffs on processed and value-added red meat products will reduce to zero (McDonald’s, 2018). McDonald’s emphasised how pivotal these free trade agreements are via an import duty graph, where the advantage Australia enjoys is clearly illustrated. Despite low tariffs, due to Australia’s high comparative costs and production constraints (e.g. drought-affected national herd numbers), it is uncompetitive regarding price. In comparison, U.S. (and others) beef tariff is currently a baseline 38.5%, a minimum 11.6% higher than Australia, but remains competitive due to greater availability (cheaper costs and high production volumes).
Regarding beef, Japanese domestic produce is either suited to a specific purpose, or there is insufficient commodity to meet the demand from their large population. Only 40% of beef consumed in Japan is produced domestically, the majority of which carries purist distinction – highly marbled Wagyu – which therefore attracts no import competition. ‘Japanese Wagyu is typically sold at about twice the price of Australian and U.S. beef at retail’ (Nason, 2018), and genetics discussed at the Tokachi AI Centre visit attest to this. At the cheaper price point, low grade beef and the alternative – domestically produced pork – directly competes with Australian and U.S. beef for consumers cooking meat dishes at home. Oono Farms was a fantastic example of a highly productive, intensive system, competing by maximising value extracted and producing volume. Hokubee also worked on value-addition, although at the supply chain end, providing cheaper alternatives to the masses; while leveraging market access running plants in both Australia and Japan.
The remaining 60% of beef consumed is imported; for the last decade by lone-wolf Australia. However, the post-ban U.S. makes them fierce rivals again and others will soon follow. Explains Andrew Cox of MLA, ‘the import supply chain [origin to destination, as well as internal channels] still runs along traditional lines with over 80% of the Australian beef imported and distributed by the top 8-10 companies, who then handle logistics within the market – either selling to a retail or foodservice customer, subsidiary or wholesaler. This makes it hard to build exporter brands, as Australian beef is amassed into high-end commodity e.g. ‘Australian Short-fed Angus beef’. This is not ideal for smaller exporters and new entrants, as large importers generally prefer the security of dealing with significant, established exporters.’ However, evidence of the increasing confidence in other countries’ imports was seen in the supermarkets, including snippets of Canadian and New Zealand product. Imports increased for all countries during 2017, highlighting that the Japanese beef market is performing with strength, intensity and is in high need. McDonald’s stated that 100% Australian beef is imported for their patties (graded trim that is blended), a significant feat considering McDonald’s Japan is the 2nd largest franchise outside the U.S.A. The upcoming world tourism events being hosted by Japan – the Rugby World Cup 2019, and Tokyo Olympic Games 2020 – present outstanding opportunities to strengthen footholds.
Though the preferential tariff arrangement, proximity and historical ties are key strengths for Australia-Japan trade relations, there are other important factors. The Australian Embassy (2018) related that Australia’s high food safety and quality standards appeal to the Japanese (consumers, food servers, meat buyers). Japanese customers seek the integrity of reliably-produced clean and fresh products, the stark opposite to limited domestic intensive systems. MLA market research affirms this affinity and popularity, where consumers rate country of origin higher than key factors in other markets (price, meat colour, use by date) (Nason, 2018). In addition, long-term relationships Australians have formed with major Japanese importers over decades of trading, are highly valuable and a significant advantage, helping to override economic and competitive factors alone (Cox, 2018). The relationship between Japan and Australia is substantially deeper than trading beef and other goods. The success of two-way historical trade shows the partnership relies on much more.
Back to the iceberg, diving below the waterline, reveals the concealed motivations, the ‘why’ of trade. Ingrained drivers of cultures are rationalised by Hofstede’s 6 Dimensions of Cultural Difference (Hofstede Insights, 2018). Japan is an overtly masculine, rigid, hierarchal society. Individuals are fiercely competitive, perfectionist workaholics, yet loyal and communal. The nation is risk averse, highly ritualised, and loathe chaos. This discipline makes change hard to introduce. They are long-term oriented, quite deep and restrained, and frivolity is somewhat frowned upon. Australia on the other hand, is driven by western culture, simplistic, and focused on the shorter-term. It is a flexible society, where hierarchy is convenient (‘keep the convicts reigned-in’). Individuals are assertive, independent, normative and avoid being a ‘tall poppy’. They realise their impulses, are quite optimistic, and value leisure time.
These descriptions show the immense differences between the cultures, while dropping clues as to how they complement one another. Japan stresses quality, discipline, loyalty and long-term outlook, encouraging high standards, proactivity and relationship in an otherwise leisurely Australian culture. Business dealings are low risk as the Japanese take some time to trust and commit (ATIC, 2018). Australia provides a key link to Western culture, encouraging freedom, openness and greater indulgence to temper the strict Japanese culture. In addition, major societal changes in Japan are aligning the countries closer. Quite obviously, there is now radical Westernisation occurring. Tour experiences as well as the accounts given by industry personnel about doing business in Japan, largely matched Hofstede’s account. However, the tour traversed more modern parts of Japan and those snapshots prove Hofstede’s appraisal represents withering traditional values. A strong North American influence is present now, especially in Tokyo city, and this is shifting Japanese preferences and choices, providing eating alternatives, raising pop culture and hyper-convenience. This was blatantly obvious wandering the streets, in supermarkets and corner stores – the disposable overtone ironic compared to deeper morals also witnessed. The experience authenticated the power of marketing, best revealed in McDonald’s ongoing crusade to gain the prolonged trust of the Japanese people.
Equally dramatic changes are demographic re-configuration and urban sprawl. Japan has a rapidly ageing population; the largest proportion of adults aged over sixty in the world, and a birth rate incapable of sustaining growth (UN, 2007). A negative population growth rate now prevails, down one million citizens in the last 5 years, and ‘by the end of the century, Japan [stands] to lose 34 percent of its population’ (Taylor, 2016). Meanwhile, 96% of the Japanese population live in an urban environment, overtaking what little agricultural land exists, thus affecting domestic food supply. ‘With a high quality but comparatively small and declining agricultural sector, Japan relies heavily on foreign-produced food, and is one of the world’s largest meat importers.’ (Nason, 2018). By comparison, Australia too has an ageing population (to a lesser extent) and is largely urbanised at approximately 89%. However, it has positive population growth (mainly due to higher immigration), and a more secure food supply.
These descriptors and figures considered together suggest Japan-Australia trade is successful and sustainable because of complementary, strong bonds. Over time, common ground has been identified and built-upon. Both countries are middle-ranking economic powers, are tied firmly to the western world, share anxiety over local political issues, and rely on each other for growth in the Asia-Pacific region. These deeper concerns motivate each party to respond to trade negotiations in particular ways, and show they nurture market access for the same reasons.
By placing sincere value on these synergies and continuing to cooperate with the deeper motivations in mind, these countries can survive the rollercoaster of ‘super powers’ that surround them. They both become prosperous and achieve sustainable benefits – such as protection and affluence – for the long term. ‘It makes the industry marketing job important because so much of the product is differentiated only by country of origin on shelf or menu’ (Cox 2018). The likes of MLA as a marketing body, as well as the presence of ‘flag-flyers’ – the Australian Embassy, Austrade, and DFAT; monitor trends and changes as they happen, aiming to match needs and influence for the sake of Australian product. Australian product meets the market now, can align with changing preferences, and influence eating trends as Japan adopts more facets of Western culture. It extends to nurturing relationships and providing positive conviction of Australia in the minds of the Japanese.
Every party involved in negotiation has needs, both obvious and obscured, as the iceberg analogy shows. Market access is vitally important in today’s global landscape. Australia and Japan have overcome historical challenges to now enjoy a strong trade relationship, aided by policy. These vastly different cultures harmonise with each other. Strong bonds have been formed, and common ground built-upon showing both countries deepest motivations are the same. Australia has many key strengths, and to maintain comparative advantage, stick to what it does best – because that’s what resonates with Japan and its people. Major changes are taking place in Japan, affecting their preferences and values. This proves the marketing role is imperative – Japan is an iceberg, has needs to be met both above and below the waterline – and access around this market is an invaluable resource worth preserving.
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