Why Setting Up an Entity in Japan is Key to Winning Talent, Customers, Partners, and Market Share
Andrew Nimmer
Founder & CEO | Executive Recruiter | GTM Recruitment in Japan | Helping technology companies from Silicon Valley launch and scale in Japan.
Expanding into Japan is a major milestone for any global company. With the world’s third-largest economy, a highly skilled workforce, and a strong appetite for innovative technology, Japan offers tremendous opportunities. But how you enter the market can make or break your success.
Many companies consider using an Employer of Record (EOR) as a way to quickly hire employees without setting up a legal entity in Japan. While this can work for short-term hiring, it comes with significant limitations especially when trying to secure talent that moves the needle, gaining customer trust, and scaling your business long-term.
If you’re serious about Japan, setting up a legal entity isn’t just a formality, it’s a necessity.?
Here’s why:
1. Great Talent in Japan Prefers Stability: That Means a Local Entity
In Japan, employment is more than just a contract, it’s a long-term commitment. Job security, benefits, and career progression are major factors in a candidate’s decision-making process.
When Japanese professionals hear that they would be employed through an EOR, they often hesitate. Why?
? Lack of Credibility: If the company doesn’t have a legal presence, it raises concerns about its commitment to Japan.
? Job Stability Fears: Many worry that if the company decides to leave Japan, their employment could be terminated overnight.
? Fear of Offer Changes in EOR to Entity Transition: Many worry that if the company decides to switch over to the entity from the EOR their new offer conditions may change.
? Limited Benefits & Growth: EORs often can’t match the pension, health & wellness benefits, stock options, and career progression that a direct hire would receive.
Even if your company is financially stable and growing globally, Japanese candidates may choose a competitor simply because they offer direct employment under a local entity.
?? Bottom Line: If you want to attract and retain top-tier talent in Japan, having an entity removes doubts and positions you as a serious employer here for the long term.
2. Customers and Partners May Not Engage Until You Have a Legal Entity
Japan is a relationship-driven market. Business decisions are based on trust, stability, and long-term partnerships. Many enterprise customers and strategic partners will hesitate to work with a company that doesn’t have a legal presence in Japan.
Why?
? Contracts & Invoicing: Many Japanese companies only do business with registered local entities to simplify contracts, payments, and tax compliance.
? Regulatory Compliance: Some industries (finance, healthcare, security) require local representation to operate legally.
? Market Perception: A local entity signals that you are serious about investing in Japan, not just testing the waters.
Even if you have the best product or service, potential customers may hold off on purchasing until they see a legal structure in place.
?? Bottom Line: Without an entity, you risk losing deals and slowing your market penetration.
3. A History of Failed Market Entries Has Made Japanese Customers More Cautious
Over the years, many US and European companies have entered Japan without setting up a local entity, relying on EORs, distributors, or direct sales from overseas. While this may have worked in the short term, many of these companies exited Japan suddenly, leaving customers without support, no local contact, and no clear escalation path when things went wrong.
As a result:
? Some Japanese companies are now hesitant to trust foreign vendors without a local entity.
? Many customers won’t buy from companies that don’t have a Japan-based support structure or a clear path to receiving support.
? Having an entity shows that you are committed to long-term customer support and won’t disappear overnight.
For businesses in SaaS, AI, cybersecurity, and enterprise IT, where customer success and ongoing support are critical, not having a local entity can be a dealbreaker.
?? Bottom Line: Japanese customers need reassurance that you’ll be there for the long haul, an entity provides that confidence.
4. EOR is a Temporary Solution, Not a Long-Term Strategy
An EOR can be useful for:
领英推荐
? Hiring 1-2 employees quickly while testing the market and in process of setting up the entity.
? Avoiding administrative setup in the first few months.
? Bypassing the initial paperwork to get started faster.
But it comes with major downsides:
? Risk of not being able to hire top talent in the Japan market due to fears or concerns.
? Expensive in the long run (EORs charge a high fixed fee or percentage of salary).
? Limited hiring flexibility (EORs may not handle stock options, bonuses, or senior hires).
? Risk of instability (Japanese labor laws can make it complex to transition employees from EOR to direct hires).
Many companies start with an EOR, but once they hit 3-5 employees or begin closing deals, they quickly realize they need an entity anyway.
?? Bottom Line: If you’re committed to Japan, setting up an entity sooner rather than later will save you money and operational headaches.
5. Setting Up an Entity is Easier & Cheaper Than You Think
The idea of setting up a legal entity in Japan may sound daunting, but it’s more straightforward than many companies assume. The most common structures are:
? KK (Kabushiki Kaisha) – More traditional and preferred for enterprise credibility.
? GK (Gōdō Kaisha) – Similar to an LLC, fast and cost-effective to establish.
Check out this article that explains the differences for anyone to understand: KK vs GK - The Complete Story:?
With the right support with a company like weConnect, you can have an entity up and running in a matter of 8-12 weeks or an expedited version within 8-10 business days, giving you full control over:
? Direct hiring of employees under your brand.
? Back Office: Payroll, benefits, and stock options.
? Invoicing customers in JPY and building long-term business relationships.
?? Bottom Line: If you plan to grow in Japan, setting up an entity is an investment that pays off quickly.
Here is a complete guide: Starting a Company in Japan
Final Thoughts: Commitment Matters in Japan
If Japan is a strategic market for your company, setting up a legal entity isn’t just about legal requirements, it's about showing commitment to employees, customers, and partners.
? Hiring: Japanese professionals prefer companies with a stable, long-term presence.
? Sales & Partnerships: Customers and partners trust businesses with local representation.
? Growth: An entity provides flexibility and cost savings as you scale.
Japan has seen too many foreign companies enter and leave without proper commitment, creating a trust barrier that must be overcome. If you’re serious about the market, setting up an entity shows that you’re here to stay for your employees, your customers, partners, and your business success.
?? Thinking about expanding into Japan? Let’s connect and discuss how to hire, scale, and win in this unique market!
??Contact:
#JapanExpansion #JapanHiring #MarketEntry #BusinessGrowth #Recruitment #scaleinsight #EORvsJapanEntity
Bilingual Digital Marketer, supporting global brands grow in Japan. Content | E-Commerce | apps | product | SaaS | SEO | localization | advertising
3 周Agree. Double clicking on your first point - "Prefer Stability" - Without an entity, or even with a young entity, employers may miss out on the candidates at a certain life stage, because stability is important when applying for a mortgage. Japanese banks only lend money to people who have stable income from a stable company - meaning, it is going to be very challenging for those like independent business owners who have unstable income, or a white-collared worker who has not belonged to an entity for a certain amount of time etc. Which means employers without an entity may miss out on the candidates who are trying to get a mortgage right now, or is planning to do so in the near future (i.e. energetic salespersons in the late 20s who are planning on having a family and a home). Those who pay in cash will be fine - but I think that's a minority.