In the first of a two-part series on Japan, Jamie Smyth reports on how some Irish firms are prospering there - despite a fall in trade between the two countries.

When Mr Seiji Kasama boarded a bullet train for a 40-minute journey with Glen Dimplex chief executive Mr Sean O'Driscoll last year, he didn't realise that a big career change was looming.

The bilingual executive at the Japanese firm Globally Corporation already managed a key part of the Irish firm's distribution network in Japan. But with new lucrative opportunities opening up in the heating sector in Japan, Glen Dimplex was about to take another big step in Asia.

"We sat down together on a ride from Osaka and talked through the issues and decided to really target the market here in Japan," says Mr Kasama, who is now the chief executive of a brand new company, Glen Dimplex Japan.

The new firm is a 50/50 joint venture partnership between Glen Dimplex and Globally Corporation, which has been distributing Dimplex heating products for the last six years in Japan.

Glen Dimplex exports about €10 million per year to Japan but this is expected to increase to about €30 million by 2007, according to Mr Kasama. He says changing attitudes towards electrical heating devices in Japan and new housebuilding practices make the market ripe for expansion.

But Glen Dimplex is only one of a small but growing coterie of Irish firms that are beginning to wake up to the huge potential of the Japanese market for exports. Already this year, more than a dozen Irish firms have inked deals in Japan worth collectively up to €50 million.

Yesterday, the Minister for Enterprise, Trade and Employment, Mr Martin, announced several new deals and partnerships between Irish and Japanese firms on an Irish trade mission that is visiting the Japanese capital, Tokyo.

However, despite all the positive news coming out of this week's trade mission, there is also a growing realisation in both the public and private sectors that Irish companies are continuing to shun the world's second-biggest economy.

Exports to Japan from indigenous and multinational companies based in the Republic fell 19 per cent in 2003 to €2.1 billion, while imports from Japan increased by 25 per cent to €2.9 billion. And, perhaps more significantly, Enterprise Ireland's client companies also saw their Japanese exports fall back to €100 million from about €115 million just three years earlier. So what is the problem?

"There is a perception back in Ireland that Japan's economy is stagnating, so firms are not bothering to address the market," says Minister Martin. "But we have to get people to realise that it is the world's second-biggest economy and if we can get just a small slice of that market we will be doing very well."

The huge focus put on the rapidly growing Chinese market over the past four years by the Irish Government and development agencies has also diverted some Irish manager's attention away from the Japanese market. And there remains a strong perception among small and medium-sized firms that cultural barriers and protectionism make doing business in Japan an expensive challenge compared to other, more accessible, global markets.

These negative perceptions are hugely overblown, according to Ms Anne Lanigan, director of Enterprise Ireland in Japan, and the woman responsible for driving indigenous exports to Japan.

"It is a very wealthy economy with the second-biggest gross domestic product in the world. It is also a very homogenous market and one of biggest that is served by a single language," she says.

And while certain industry sectors - such as farming - within the Japanese economy remain protected by tariffs, many other sectors are now opening up and becoming deregulated. This process has accelerated as Japan's growth rates have stagnated over the the past decade, according to Ms Lanigan.

The experiences of some pioneering firms that have been successful in Japan show that certain industry sectors are particularly open to foreign exports.

"Our experience is that Japanese firms are actually more open to buying software from foreign companies than US firms, particularly on the west coast," says Mr Ronan Bradley, chief executive of the software company PolarLake. "The recession in Japan has also not stopped Japanese companies from investing in technology. In fact many realise that to be more competitive they need new technology."

To overcome some of the difficulties of getting a foothold in the Japanese market, PolarLake teamed up at a very early stage with a division of Hitachi to help it validate its product. Building a strong distribution partnership with a Japanese firm is often a crucially important step to gaining' a foothold in the market.

"It's not impossible to go it alone but you have to ask yourself: do you have 500 sales staff to tackle the market?" says Mr Noel Toolan of Alltracel Pharma, who signed a distribution deal with the Japanese healthcare firm Nichiban yesterday.

Nichiban will market and sell a new bandage product designed by Alltracel Pharma that is specially designed to stop wounds bleeding.

The healthcare market is particularly open to new innovations in Japan, which has the longest life-expectancy of any country.

"Japanese consumers are the longest-living in the world and are a nation of hypochondriacs," says Enterprise Ireland's Ms Lanigan.

"There is always something wrong with them and they have a myriad of hangover cures and new gadgets of some sort to fix something."

And with the baby-boomer generation beginning to retire from 2005 onwards, products geared towards older people and the medical sector will be popular.

For example, Japan is now the fastest-growing market for Slendertone, a Galway-based firm that develops belts for the fitness and medical sector.

The company, which faced a funding crisis in 2002 before attracting fresh equity, recently signed a new distribution deal with Oaklawn in Japan and has experienced a rapid growth in sales.

"We had a very significant increase in our Japanese sales in 2004 and over five years will make about €21 million sales," says Mr Colin Lawlor, chief operating officer of Slendertone, which has had a presence in Japan since the 1980s.

Finding the right partner in Japan was Slendertone's key to success but quality of product is equally important, says Mr Pat Donnellan, chief executive of AEP Systems.

The Dublin-based technology firm AEP Systems has enjoyed considerable success in the Japanese market this year, after signing a distribution deal with SSE, a subsidiary of Sumitomo Corporation.

"Negotiations were a slow process for us in Japan and price is often not the starting-off point - rather you have to offer them something they don't have," says Mr Donnellan.

"Trust is also very important and we have to keep our partners well-informed about venture capital issues because we are a private firm. They do not want a product that is flawed that could potentially make them 'lose face' with clients," he says.

But persistence is now paying off for AEP systems, with Japan now the biggest market for one of its core security products.

Enterprise Ireland must now hope that other Irish firms will shed their preconceptions about the Japanese market and move more of their business to the Far East.

Next week, Jamie Smyth investigates whether Japan's economy is finally on the road to a sustained recovery.