China’s Chances in Japan

Domestic Opportunity for International Actors

Amidst the strangeness of Japan’s foray into international markets, and its own shortcomings in the domestic market, we’ve suggested before that now’s a great time for a global firms to make moves on entering Japan’s market given the dearth of promising domestic developments.

Previously, we’ve pointed out South Korea’s decent positioning for establishing a foothold in the Japanese gaming market. They’ve got a long history here, legacy business accounts, and some recently successful products. But they’re not the only one that could or already is making splashes.

Of the major players out there, China’s perhaps moving most aggressively and arguably successfully into Japan’s IT market. There are 3 recent developments in particular that draw our attention to their potential for capturing major market share. Check them out below!

Gaming

While Nintendo has good standing in the global gaming world, its standing is considerably stronger on its home turf. But if they aren’t careful (like in the past), they could easily see their stranglehold on the market loosen if not falter. 

One very strong indicator of the opportunity to grab available market share is MiHoYo aka Cognosphere’s Genshin Impact. A strong action RPG contender itself with over 50 million installs, it’s popularity is more than meets the eye.

Shanghai-based MiHoYo has proven very adept at playing to the domestic Japanese market’s tastes. From gameplay, to art direction, to narrative development, Genshin Impact is a remarkable example of mimicking world-caliber gaming tropes established by Japan itself. 

After years of unbridled success, Genshin Impact has recently caught considerable flack for it’s parent company’s conspicuous Japan-market rebranding, from MiHoYo to Cognosphere. While we can’t speak to the reasons for this ourselves, we can read the headlines, and they’re pretty bad across the board.

The gist of it is that Japanese consumers see MiHoYo’s unforeseen rebranding as trying to hide the fact that they’re a Chinese company, despite the extreme likeness of the product to something that a Japanese firm would have created.

Crypto

Oh boy, where do we start? Easy. Binance. With all of the fallout starting with Terra’s collapse and subsequent manhunt, through Celsius’ asset firesale and the newly subpoena’d Three Arrows, and on to the spectacular fireworks of FTX’s demise and founder Sam Bankman-Fried’s denial of bail because he’s vegan, the West’s crypto environment is severely compromised and licking its wounds hard. This includes their Japan operations, which weren’t many to begin with, but are now dwindling even further. 

With only 31 Registered Crypto-asset Exchange Service Providers, there’s only so much competition. There’s a bit of a power vacuum forming as the US pulls back while Japan’s domestic developers continue languishing in obscurity, China’s rather well situated to take move into the market.

And China’s been having a grand ol’ time in the Japanese market for a while, so they aren’t new entries. But Binance, arguably the most major exchange in existence right now, has just bought up the Japanese Sakura Exchange, giving them license to legally operate here.

Is that just a good purchase, or perhaps a bit more than that? We would be remiss to make any definitive statements on the matter, but there’s no doubt in our mind that it’s worth keeping an eye on.

AI

Perhaps most interesting of all, though, is China’s steady march on AI in Japan. In some ways combining the elements of the Gaming and Crypto examples listed above, it would appear that China has successfully identified a market niche being underseved by domestic Japanese organizations’ low skill level which can best be addressed by utilizing seemingly Japanese assets.

That’s right, folx, China’s given us AI-generated anime-ized avatars that, according to The Japan Times, are taking off, particularly in the beauty sector.

At the center of it all appears to be a company named Meitu, which also has a long history in the Japanese market.

The Domestic Market Lacks Internal Support

This is a problem we’re working on here at Shinka Labs, too. Japan’s proven itself over decades to be a very profitable and motivated market, but at the moment the needs of 21st Century consumers aren’t being met by legacy players. 

While it’d be great to say, “gee, look, Sony’s knocking it out of the park, and Toyota, too!” the fact is that they simply aren’t. And, too, they’ve proven to be difficult characters to direct, such that a logical conclusion would be to just get other players into the market who’ll do what needs to be done.

Its either that or let the market die, but that’s not such an attractive option. China, for better or worse, looks to be pretty well prepared to take Japan by storm.