Registered Interests

Back to Contents of Issue: March 2002


British-born Columbia University graduate Craig Dibble and Japanese tax attorney Shu Saikawa preside over a nascent empire in Tokyo's Minato ward. The latest addition to their services is Japanese domain registration -- a first foray into Japan's online jungle. Fortunately for Dibble's battle with bureaucracy, he wields a sharp machete. J@pan Inc's J Mark Lytle talked to him about domain registration, secrets for dealing with the Japanese bureaucracy and how startups can avoid unnecessary costs.

by J Mark Lytle
First of all, can you explain exactly what services your company offers?

We provide a range of business services to foreign companies operating in Japan. First is consulting services where we give advice and training on financial, tax or business issues. Second is administration services. Here we outsource many of the financial and general administration functions of a company, such as bookkeeping and expense processing. Finally, Shu helped me start a recruiting business last year. We know our clients well through the consulting and administration businesses and felt that we had an advantage in picking the right person for the job.

The type of work has changed a lot over the last three years. We set up many branches and subsidiaries of US dot-com companies in the past. However with the bursting of the IT bubble, many have since closed. Some did not even get as far as sending permanent staff here. Recently, the startups have been more careful and more planned. For example, we have been helping a number of Indian software companies who have started offices in Japan in order to be closer to their clients. They seem to be doing well. I think it shows that, especially in a slow economy, it is important to offer good value for money. This has been our philosophy too.

How did you get started? Who do you employ?

I'm an MBA from Columbia. Shu Saikawa is a Japanese tax attorney. We both worked in the investment banking industry until three years ago when we set up our firms -- I was concentrating on consultancy, Shu was concentrating on accounting and tax. We now run the businesses jointly, though we still use two separate brand names: Shinkawa Office (www.shinkawaoffice.com) and SohoTrust (http://sohotrust .com.) We are six people in total. Most of us are doing administrative work and we specialize in our own areas to improve efficiency. We also like to use temporary help for routine jobs, such as expense processing.

What did you do today?

Today was a pretty typical day for us. We gave some advice to a foreign bank on a government relations issue. We applied for two business visas to the immigration authority. We calculated and paid salary deductions to the tax office. We applied for a car parking registration at the police office. We created a quarterly financial report. We interviewed a potential candidate for one of our clients. Finally, we arranged installation of phone lines and Internet services at one of our startup clients.

You offer a domain registration service -- what's to stop individuals from doing it themselves, as they can in other countries?

In the US you can register a dot-com name online for about $20. The situation is completely different here. Only companies registered in Japan can apply for a .co.jp address and checking the validity of the application takes the authorities over a week. It's much more expensive too of course.

Domain registration is a nice example of one of our administrative businesses. Most people will only ever make one application for a domain name in their life and dealing with us is very efficient time-wise when they compare it with the time necessary to research the issue. If they are a client of ours we already know most of the information the registrar needs (i.e. the corporate registration details). All we need is the name required and the server address, so we just put our fee on that month's bill.

But we're not doing anything so difficult and if you can speak Japanese it's just as efficient to go through your Internet service provider. Where we really add value is in another area. A little background: Companies are allowed to register only one .co.jp address each. This rule was an attempt by the authorities to stop cybersquatting -- the registration of a large number of names with the intention of selling the names to their rightful owners. What the rule does not take into account is that many firms have quite valid reasons to have more than one address. For example, Tiffany the jewelers registered tiffany.com and tiffanys.com, as it is known by both names. The Gap registered its Banana Republic brand as a separate site, bananarepublic.com, in addition to gap.com. Finally, some firms register misspellings -- for example, yahooo.com directs surfers to yahoo.com.

None of this is possible in Japan, at least not directly. But if there is a valid business purpose it makes sense to start a new Ômini' company and register the name through that. We can run the company on our client's behalf, arrange the registration, even the site hosting if necessary. It's not a cheap solution but if a company has a valuable brand name, it is a very worthwhile step.

Who are your direct competitors in that field?

I don't know of anyone else that offers domain name registration accompanied with company formation and administration in Japan. Maybe one of the accounting firms could do it if asked, but we would beat them on price.

Tell us about your experiences in dealing with Japanese bureaucracy.

Much of our business concerns helping our clients through the Japanese bureaucracy. In Japan there are a lot of shades of gray between black and white when dealing with bureaucrats. We have had to fix many bureaucratic problems that our clients have found themselves in.

Our philosophy is not to argue the case, but to understand what the government agency needs and give it to them. We found that works very smoothly. Small considerations can turn a rock hard "no" (or more likely a "muzukashii," which amounts to the same thing) into a willing "yes." Some clients like to be completely insulated from the Japanese bureaucracy and like to simply outsource their entire needs. That usually goes well. The clients that we find have most problems in Japan are those that know enough about Japan to want to be involved in the process but are not flexible enough to make the system work for them. We find that once you understand the concerns of the bank or particular government office it is possible to make most applications go quite smoothly.

We've had our own issues with bureaucracy too of course. We entered into the recruiting business last year. Recruiting is a licensed business in Japan, however many recruiters do not apply for a license as there is no penalty for not having one -- or rather, the penalty is that you get told to apply for one. Our clients are in regulated industries however, so we decided to apply. Some banks have been criticized by the banking regulators for using unlicensed recruiters.The first reaction is amazement and frustration -- why on Earth does a recruiter need a license? I can understand that we might like doctors to be recommended by a competent body but I can't see the damage that an unlicensed recruiter might do. But these are the rules and they're not going to change because we don't like them so we made the application. Following the application we needed to undergo training and have an office inspection.

The training is not given by the Labor Ministry, but by a recruiters' association. To no surprise whatsoever it turns out that the trainers are ex-Labor Ministry workers, all of whom give speeches about their 25 years experience in the ministry. You arrive at 9am and receive an application from. If you arrive late, tough -- no form. I sat with about 300 applicants in a large, cold hall. The temperature gradually increased throughout the day and soon the class had divided into those who were awake (generally sending emails on their mobile phones) and those who were asleep (the occasional snore wafted across the room). Luckily for these people, the requirement is only that you receive training -- there is no requirement that you remember or understand the training. At 5pm you give back the application form and receive a certificate.

I received my certificate but noticed that my name was spelt slightly wrongly and was in the wrong order -- family name was second and they had missed out a syllable. A few years ago I would have ignored the problem, but I'm smarter now about how bureaucrats think. Had I tried to apply for the license with the training certificate spelt wrongly, I would be putting the applications officer in a difficult position and he would have had to take the responsibility to give us the license on the basis that the names were not consistent. I therefore stayed at the training seminar another hour until I got the certificate corrected. That way you don't put the applications officer in a position he's uncomfortable with.

The second part was the inspection of the office, which needs to be 20 square meters. I have no idea why this might be a requirement but it is. So when we gave the plan of the office we showed the area calculations and made it clear that there was enough space. The inspector came, checked the area again and asked to look at the filing cabinet that we would be using to store resumes. I think he was concerned that they would be secure. One response would be to explain that we don't keep paper resumes, to show the scanner and explain the security protocols on the LAN. But it's much easier to just show a filing cabinet, show the lock and get the checkmark on his list. Again it's better to show that you understand the rule and don't make the inspector feel uncomfortable having to make a judgment call.

Sure enough, we received our license a few days later without a single query.



What opportunities do you see in the Japanese market for yourselves?

I think there is a general lack of places to get good, practical business advice in Japan. Japanese lawyers often have little management insight. It's not really surprising when you consider that to be a bengoshi you have had to study on your own for probably six years after graduation. The accounting firms have the knowledge but the local firms revolve around the tax filing process and the global firms are just too expensive for many firms, particularly startups that have to watch their finances.

We can offer that advice but what makes it special is that we have the resources to implement it too. So, I think the future is bright for us, but we are limited of course by the low level of activity in the economy, particularly the reduction in the number of startups.

How do you charge? How do you make money?

Most firms pay us a fixed monthly fee. Some like to make the fee higher and to include ad hoc requests and advice. Some prefer a lower fee and to have extra work charged individually. We are very flexible.

Our aim is to price slightly above a Japanese accountant level (justified by bilingual service and quality) but well below the level of the multinational accountants. We make our pricing very clear, much of it appearing on the Web site. Unlike some firms, we charge the same price regardless of the client's financial state. Our model is to be an H&R Block for corporations -- clear pricing and expert advice for the average business. The way we make money on the administrative side is simply through economies of scale. When you process the number of expenses, visas and applications that we do, you get very good at it.

Any advice to startups?

Spend some time understanding the tax situation in Japan early. There are many mistakes that can cause unnecessary costs or trouble with the tax office. Particularly ensure that payroll is done correctly as mistakes here damage your credibility with the authorities.

Consider the legal form of your corporation carefully. From a tax viewpoint, there is little to choose between the main forms (branch, YK, KK), however, customers may not feel comfortable with some choices. Some people try to save money on formation costs by picking a cheaper alternative only to have to change the form later at additional cost.

Can you tell which startups will work out? Which won't?

I wish we could! We could save some investors a lot of money. I once thought that knowledge of Japanese language and culture was important but one of our most profitable clients was set up by two guys who have rarely ventured outside of Roppongi. Most important is passion -- that is essential because starting a new business takes commitment above what any salaried worker can ever give.

What things would you change to assist new businesses?

I was recently asked the same thing by a member of the Ministry of Economics, Trade and Industry. He was concerned that the process of company registration and the capital required was holding back foreign businesses setting up in Japan. In Japan even a yugengaisha (YK) needs a capital infusion of ´3 million. I read that Richard Branson started Virgin with just £500 -- he couldn't even pay his registration fees with that in Japan.

I think that even larger problems are in the banking sector and in the tax system. The banks have little interest in new business. Even simply opening an account can be difficult. The problem seems to be the pricing structure -- the banks don't make money on small accounts but have no flexibility to charge more.

The second immediate issue I would change is corporate taxes. Like the US, Japan has Ôdouble taxation' of corporate income -- i.e. it is taxed once on the corporate level, then taxed again on a personal level as dividends. This means some entrepreneurs are facing confiscation of over one half of their income. When the government takes more than half of your income you have to wonder if you are working for yourself or for them.

As a practical matter, most owner-managed startups will be paying enough in salaries and bonuses to ensure that there is no corporate tax payable. But this is very negative for the company and the economy -- it gives the incentive not to leave money in the company for future expansion or to cover future hard times. I can't see the Japanese government abolishing corporate tax, but at least a corporate tax paid credit system (as used in the UK) would help.

Any interesting clients?

We have some pretty famous names but my favorite is when we did the personal taxes for a refugee who arrived in Japan with no shoes. He was working in a restaurant and we got him a tax refund as he didn't realize he could claim dependent status for the family members he was supporting outside Japan. He now has shoes. @

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