The Consequences of 7-Eleven Expansion - Assignment Example

Global Retail and the Transfer of Management Knowledge How did 7-Eleven adjust the convenience store concept to fit with the specificities of the Japanese market' How did it re-export the model to the USA after rescuing Southland from bankruptcy' The company was purchased by Ito-Yokado, which was a Japanese retailing giant, and Seven-Eleven Japan. Certainly, the retailing skills already known to Ito-Yokado were of utmost importance in adjusting the convenience store concept to fit with the specificities of the Japanese market. The company had received instruction in operating convenience stores seventeen years earlier when it licensed the 7-Eleven name from Southland (Bernstein, 2008). There is no doubt that this training proved to be crucial for the company's overall success later on in the Japanese market. There was much friction to be overcome if convenience stores were to be successful in Japan. This was mainly because of the overwhelming presence of small shops in the area. A lot of laws and regulations were put into place to try to protect these small shop owners, such as laws restricting large retailers-such as department stores-from certain activities (Bernstein, 2008). The company was brought to Japan mainly because of Toshifumi Suzuki. The company which he represented, Ito-Yokado, did not support the idea of bringing the convenience store to Japan as a franchise. However, Suzuki did support the idea and claimed that not only could profits be generated by convenience stores, but that the concept could also result in lessened friction between stores of different sizes. The number of small stores in the country was seen to Suzuki as an opportunity rather than a challenge. His idea was to build a franchise system of convenience stores and, in exchange for a cut of their profits, offer them managerial expertise and other guidance. He obtained knowledge from Southland with regards to how to operate a franchising system. Eventually, Suzuki was able to convince Masatoshi Ito to at least look into the idea (Bernstein, 2008). There were quite a few right moves by the company that led to it being such a large success in Japan. The company sent its amateurs for training in the United States. They knew to avoid price competition with supermarkets. They utilized Southland's accounting system. The setup of the store itself was perceived to the Japanese as being foreign, which had an appeal of its own. Ito-Yokado had such a great market power that Seven-Eleven Japan was able to leverage it to acquire wholesalers. The company positioned its stores in urban areas to attract individuals who only wanted a few items and were in a hurry. They carried a broad array of items for sale (Bernstein, 2008). When the model was re-exported to the United States, the Japanese had learned what mistakes to avoid by observing Southland's slow demise. They used some of the techniques that they utilized in their own country in order to make the convenience store change successful in the United States. One of the biggest keys to doing this was through adapting the latest in information technology. Since that concept had been so successful in Japan, the Japanese figured it could only do the same for the United States. In conclusion, this was a relatively unforeseen event-at least of its scope-in Japanese history. Japanese companies in the retailing industries were not seen worldwide as being efficient. Their distribution systems were archaic at best, and large retail giants such as Wal-Mart were few and far between. Using the skills they learned from Southland and their own parent company, Seven-Eleven Japan was very successful (Bernstein, 2008). Why did 7-Eleven thrive while Southland declined and eventually went bankrupt' Why, more in general, are there so many successful global retailers of non-US origin' 7-Eleven thrived not only because of the reasons discussed above, but also because of several other key factors. These include its franchise system and market dominance strategy, the rationalization of distribution, coordinating the preparation of food products, and the use of information technology. The reason that there are so many global retailers of non-US origin that are so successful, such as in this case, is that the learn from the mistakes of others (Bernstein, 2008). According to Bernstein (2008), Southland typically purchased plots of land, built stores, and then found team members to run those stores. Unlike their United States counterparts, Seven-Eleven Japan focused on selecting mom-and-pop stores and convincing their owners to turn those outlets into 7-Eleven stores. Seven-Eleven Japan also consolidated its vendors. According to Bernstein (2008, pg. 1), "Instead of allowing each manufacturer to pick its own wholesaler, Seven-Eleven Japan insisted that all manufacturers in an area deliver to a single wholesaler. That wholesaler became responsible for sorting and then delivering the products of multiple manufacturers to all 7-Eleven stores throughout the area." This process reduced the amount of store deliveries and the overall complexity of 7-Eleven's delivery route system. According to Bernstein (2008), the fast food products sold in American 7-Eleven stores, such as Slurpees and hot dogs, did not go over well in Japan. Instead, Seven-Eleven Japan decided to sell more traditional Japanese snack items. Examples of these included rice balls and bento lunch boxes. However, first the company had to improve the quality of the foods that it offered, which it did. According to Bernstein (2008, pg. 162), "Seven-Eleven Japan linked these dedicated manufacturers, its distributors, and its thousands of retail stores through a comprehensive computer network. Its rapid introduction of information technology and its efforts to upgrade the capabilities of this technology were a very important reason for Seven-Eleven Japan's continued success. The company spent substantial sums on upgrading, and its technological infrastructure has reportedly been changed over 80 times." There are other reasons why Southland declined while 7-Eleven was so successful. Both were strong during the 1970's and 1980's. However, inflation took a particularly hard toll on Southland. Inflation meant that Southland had to pay higher prices for its land upon which it planned to build new stores. Also introduced in the 1980's was competition that was much fiercer. Oil companies began converting gas stations into convenience stores. Competition also began to arise from supermarkets. Many convenience stores in America were also threatened by the health and fitness boom that followed (Bernstein, 2008). In conclusion, there were a number of challenges that led to Southland's decline. One was their creation of a two-tiered pricing scheme, where they charged lower prices for soda and beer and higher prices for groceries and household products. The company also introduced services such as ATM's and video rentals, but it was not enough to diversify the company (Bernstein, 2008). Neither action proved to be innovative enough to save the company, which could not differentiate itself from competition. They also failed to invest in information technology and had several failed diversification ventures (Bernstein, 2008). To what extent do you believe companies from the BRICK countries will be able to replicate the 7-Eleven success story' Are there any examples already' It is believed that companies from the BRICK countries will largely be able to replicate the 7-Eleven success story, so long as they stay on top of things and not lose focus. It would be foolish for any country to believe that it could simply duplicate its operations in a foreign country and be successful as a result. Such actions must be avoided at all costs. One reason why Seven-Eleven Japan was so successful was that its leaders carefully considered a variety of factors in the Japanese market and did not simply try to duplicate what the convenience store did in the United States. Taken into account were things such as the culture, information technology, consumer buying patterns, consumer desires, and much more. According to Inspiracao (2008), they expect a 10% growth out of China, Korea, and India in the next several years. They also expect that other countries in Asia will grow, although not at the same rate. Latin-American countries are also expected to grow, mainly Brazil. There are also high expectations for Russia. All of this growth means that these countries could lead the world economically. The first letter of each of these countries names forms the word BRICK, so they are collectively referred to as the BRICK countries. The export of natural resources and the growth in overall world population is of utmost importance to each one of the BRICK countries. In addition, production cost is made lower in these countries thanks to relatively low labor costs. "This makes it attractive for foreign companies to open factories or offices in these BRICK-countries which enhances employment and prosperity even more. The growing prosperity makes the domestic demand higher and therefore the BRICK-countries become less dependent on western countries (Insparacao, 2008, pg. 1)" There are examples of BRICK countries replicating the 7-Eleven success story already. According to Martens (2006), in hopes of gaining more Russian developers who would in turn use their middleware and hardware, a new initiative was launched by IBMCorp. The whole idea behind the concept was that it would allow the company to focus on emerging markets in the BRICK countries. Mark Hanny, IBM's Vice President of Independent Software Vendor Alliances, says that, "Of the annual estimated US$1 billion IBM is investing in the BRICK countries in terms of initiatives with partners and developers, investment in Russia is in the 'multimillions' of dollars." Another industry that is doing well in the BRICK countries is the aluminum industry. Challenges include competing against low-price imports, healthcare costs, environmental concerns, labor costs, closings, relocation, the following of customers into new growth areas, and taking advantage of the market. Growth in the West is more dominated by technology than in the BRICK countries. According to Recycling Today (2005, pg. 1), "In the BRICK countries, it will be about infrastructure building, consumer awakening, transportation, energy, communications and long runs of simpler products (commodities). It will be initially manufacturing dominated. Progress will be fast. These countries will be coming after many of the products, processes and technologies that will be in the West. They will also leapfrog to the latest products, latest applications and the latest manufacturing processes." In conclusion, companies that strive for international growth-particularly in the BRICK countries, will need to be aware of the consequences of their expansion. The benefits listed above can be realized, but not without their consequences. References Aluminum's opportunities: A shrinking globe offers manufacturers expanded opportunities. (2005). Recycling Today. Retrieved October 10, 2008, from http://74.125.45.104/search'q=cache:FGU667kPBOMJ:goliath.ecnext.com/coms2/gi_0199-4657182/Aluminum-s-opportunities-a-shrinking.html+%22BRICK+countries%22+company&hl=en&ct=clnk&cd=4&gl=us Bernstein, J. (2008). 7-Eleven in America and Japan. Harvard Business School Teaching Note 797-031. Brazil is one of the BRICK countries. (2008). Inspiracao. Retrieved October 7, 2008, from http://www.inspiracao.nl/'p=77 Martens, C. (2006). IBM targets Russian developers. Outsourcing World. Retrieved October 7, 2008, from http://www.russoft.org/docs/'doc=1094 Read More