Concept Generation in the Toy Industry - Term Paper Example

The case from the book (Crawford & Di Benedetto,pp100-101,159-160) "Concept generation in the toy industry" of the of the institution] The case from the book (Crawford & Di Benedetto,pp100-101,159-160) "Concept generation in the toy industry" During the late 1980s to early 1990s large retail stores had many local and political barriers to enter the Japanese market. Advantages that helped TRU to enter the market include: the changing political climate and shopping culture; strategic contacts; international experience and adaptability; publicity. Changing Political Climate and Culture The first major advantage TRU that helped them to enter the market was growing resistance to the "big stores laws" existing in Japan during the mid to late 1980s. It was stated in the case that there were lobbying efforts by Japanese businesses because the laws barred competition and benefited the large established stores that were created before the laws existed. Therefore, the timing TRU chose to try to enter Japanese market was an advantage. The first reason is because they realized the changing political direction in Japanese retail sector and could achieve a first mover advantage if and when the laws are changed. Another advantage TRU recognized was the changing shopping demands in Japanese culture. The change in the culture stems from a higher disposable income, more education and free time. This results in more Japanese traveling over seas and exposure to global or international products, stores and culture. The new trend moved towards price consciousness and low prices with preference to specialty retailers with large selections. This is an advantage because TRU strategy is based upon price, selection and keeping stores in stock (case). Thus the changing Japanese shopping culture and political climate favored TRU's expansion into the market. Strategic network When trying to enter the Japanese market TRU faced major obstacles in the forms f government regulations and business customs. As mentioned earlier the "big store laws" prohibited large foreign (even domestic) companies from operating in Japan without consent from local store owners in the area. TRU overcame these obstacles by using strategic contacts that helped put pressure on MITI (Ministry f International Trade and Industry) to revise the current laws. From the help f US lobbyist and government, mainly US trade representatives, Den Fujita, president f McDonalds Japan, and the for-mentioned opposition from the political climate, discussions were held addressing the issues in the Structural Impediments Initiatives in 1989. Through TRU strategic contacts' pressure, negotiations were reached that allowed favorability for TRU's market entry (case). Other contacts TRU utilized to enter the Japanese market are Nintendo and McDonalds. Nintendo, a large toy manufacturer, and TRU have an established long term business relationship that served as an advantage when Japanese suppliers refused to sell directly to TRU. Because Nintendo publicly announced they will directly supply TRU, other manufacturers began to follow Nintendo. McDonalds Japan was also a critical factor in TRU's market entry. Briefly, the partnership between the companies allowed valuable transfers f re-sources including market research, network connections and the knowledge f business practices in Japan. The formation f MTB Rengo group which comprises f TRU, McDonalds and Blockbuster also helps to maximize consumer traffic by building mini-malls with large parking lots that have in essence, one stop shopping convenience (Alexander 2004). "More families visit McDonalds in Japan than any other business and we look forward to working with them to effectively leverage this incredible traffic (www.toysrus.com)." McDonalds's will be further examined in the following section. Established, Experienced, and Adaptable Having already established their international presence, TRU has valuable experience in the foreign market and are able to adapt to its demands. This serves as an advantage because TRU understands what it takes to be successful. Examples include the establishing f joint ventures in Singapore, Hong Kong, Japan, Nordic countries etc. to pool resources and collaboration in developing efficient supply-chain. They learned to adapt the different retail situations in each country that they entered. Examples f adaptability are: caring different product mixes, i.e. wooden dolls in Germany and porcelain dolls in Japan; competing against different retail categories, i.e. Lego Shops, Books "R" Us, Learning centers etc.; overcoming high cost f land and labor, i.e. building smaller stores in England and hiring part-time employees(case). These examples clearly highlight the adaptable nature f TRU which serves as an advantage for overcoming the barriers in new markets. Publicity There is a saying, "any publicity is good publicity". Shinji Shimiju CEO f Lion Supermarket filled a law suit against MITI the press coverage helped to focus attention to the fact that certain companies were benefiting from the local laws and politics. Than after scandals among the leadership f the Liberal Democratic Party (LDP) arose and about the TRU difficulties to open new stores gained attention in both American and Japanese press. All this publicity from the newspapers and media questioned high prices, government regulation, and their traditional aspects f business which possibly not only aided with the revision f current laws but also helped TRU attract a crowd f 17,000 people and set a grand opening sales record on opening day(case). How did the 20% stake taken by McDonald's help TRU to gain entry First f all, the stakes taken by Mc Donald will enable both companies to work in a strategic relationship. McDonald's is already a well established US Company in Japan, with a good image, and well perceive by Japanese people, Toys "R" Us can learn from its successful experience in this new market. According to Miller (2001), business relationships in Japan are more focused on human communication, sharing experiences and information rather than only business activities links. Ford(2001)states that the relationship in a network doesn't need only activity links and resource ties, but also actor bonds. For this reason, networks are really important in Japan, especially on a human level. This is one f the most important strength in the collaboration between McDonald's and TRU. As it is described in the case, the participant in a business relationship in Japan must pay a big attention to social practices. It is also said that the cultural values can reinforce the network f wholesalers. Considering these aspects, Mc Donald's will be a crucial partner since it will help TRU to build social correlations within the Japanese market. According to Ford (2001), a relationship, even when the companies act in different busi-nesses, can bring many opportunities such as sharing marketing research, customers' in-formation or market information. Harrison and van Hoek (2002) insist on the development f effective partnerships and discuss about how to choose the right relationship. According to them, cooperative relationship or partnerships have been characterised as being based upon: sharing f information, coordinating and planning, mutual benefits and sharing f risk, recognition f mutual interdependence, and share goal. They also insist on the fact that establishing relationship should serve the business objectives in both parties. Even if McDonald's has already an experience in Japanese market they can take advantage f TRU business (future customer for example or commercial event with a common target). Relationships take a considerable amount f time to develop and nurture. In this case, McDonald's is a stakeholder meaning they have some influence in the decisions and that will make the relationships easier and more workable. In a Marketing point f view, this collaboration will provide TRU, which was not at first well-perceived in Japan, a good image, because the brand will be linked with one f the most successful US companies in Japan. It gives TRU more positive publicity and credibility. On a financial point f view, this partnership will provide TRU an insurance and safety, to have a good support in case f failure in their entrance in the Japanese market. Concerning this case, TRU and McDonald's try to attract the same kind f customer; they have to convince people to buy new type f product and adopt a different way f buying (fast American food for McDonald's, and big toy store far from the neighbourhood for TRU). They have to attract children and f course their parents. For this reason, Mc Donald and TRU have better to share the information. McDonald's, when they took 20 % stake, were already installed in the country so it will be a real help for TRU, given that the country has differ-ent values and customs than the rest f the western world. According to Harrison and van Hoek (2002) entering into a partnership with a company to whatever extent, implies a transition away from the rules f the open marketplace and to-ward alternatives. These different structures must demonstrate benefit otherwise they will not deliver competitive advantage. Thus, McDonald's participation in TRU's business will give competitive advantage for them, compared to the other toys stores in Japan working on their own. Furthermore, the declaration f Den Fujita about a common project between McDonald's Japan, TRU Japan and Blockbuster shows a genuine willpower to build a network. In that case, the three participants will be on a same level and therefore will all take part into the decisions, bring experience and take profit from the partnership. This project confirms that there is and will be real opportunities for the American companies in the Japanese market, based on a network f relationships between both American corporations within Japan and the Japanese actors themselves. As mentioned earlier this partnership will create more and more traffic around the suburban store since the grouping f store attracts more customers than the total f customers attracted by these same shops separately. What problems do you anticipate that TRU will have in the next few years as it expands External Problems If TRU is successful, possibly, nearby department stores will feel threatened and upset. If TRU wants to expand they will face opposition from local retailers, but also landlords who are reluctant to lease locations. Due to the limited space in Japan this could be a big problem when TRU tries to expand and make more mega stores. There will probably also be new associations formed to fight the big block stores. Also, the wholesalers maybe are afraid to lose their influence on the retailers, because TRU doesn't want to practice the selling at manufacturers' suggested retail price. New competitors also might come to Japan to build up stores due to the changed law, but also existing Japanese toy retailers might enlarge their stores to compete against the larger TRU. According to Pereira and Zimmerman (2004) TRU has exclusive distribution and advertising deals with some manufacturers, this means that some toys will be sold only at TRU stores. This helps TRU to keep their based upon price and selection strategy. But if other Japanese toy retailers or other international competitors get bigger in Japan they maybe can't keep these exclusive contracts with the manufacturers and they also sell their products to other retailers. Toys R Us has already been hurt by competition with major discounters such as Wal-Mart in the US (Toys R Us wants out f toys , 2004) The Japanese trading system is limited by tradition-bound commitments and established trading relationships between distributors. Especially for the "Safety Toys" which have ac-cording to the case a market share f 95% in Japan, it will be not that easy to find manufacturers. Additionally to this Manufacturers' pressure on the distribution system can be in-tense in Japan. According to the case in Japan 56% f the retail sales account to small shops. TRU with it's large retail stores and huge car parks is the opposite f the small local shops in Japan. To visit TRU you most f the time need a car. So TRU need to convince the Japanese consumer to buy in larger retail stores than they are used to or accommodate the large amounts f train commuters. U.S. firms often cite difficulties associated with hiring and retaining local employees as one f the fundamental obstacles to doing business in Japan (http://www.hawaii.gov/dbedt/ert/cp/japan.html, 2004). This could be also getting a problem for TRU in Japan, because Japanese people are not used to foreign habits. TRU can also have problems to rent space, because the small shops are afraid to go out f business. So some Japanese landlords are reluctant to lease TRU space which could upset local business clients. There are laws and regulations in Japan which directly or indirectly restrict the establish-ment f business facilities and hinder market access for foreign products. Also Japanese civil courts are ill suited for litigation f investments and business disputes and horrendously slow. Another problem in Japan is that corruption is "Institutionalized" (http://www.hawaii.gov/dbedt/ert/cp/japan.html, 2004). Internal problems One internal problem that can occur when TRU is expanding in the future is over-trading. According to Pike and Neale (2003) there are three mistakes which can occur with over-trading problems: Initial under-capitalization, over-expansion and poor utilization f working capital resources. Over-Expansion happens when a business expands to such a degree that its capital base is insufficient to support the new level f activity, so the company is under-capitalized. Also, TRU has to take care that they not over-expand their business-activities that they don't get in a financial crisis. Another problem for TRU could be the distribution for such big shops. The case study says that for the most part f TRU's business they were forced to go through established distribution channels. This could force distribution problems due to the fact that the distribution system is made for small shops. So TRU has to find new distribution channels if they continue expanding their business, otherwise stock outs can arise. This can according to Pike and Neale (2003) cause extra costs and loss f customer goodwill. This goes also against the main strategy f TRU f keeping stores in-stock. Conclusion In conclusion, the main points addressed in this case analysis will be highlighted. TRU's advantages include: the right time entering the market during a changing political and cultural climate in Japan; the use f strategic contacts in the US-government and retailing mogul Fujita; already established, experienced, and adaptable in international retailing; the use f publicity in the media. McDonalds played a critical role in TRU's entry through already established social and human aspects to reinforce business relationship that is the foundation f Japanese business. TRU is also able to pool the network resources and Japanese market knowledge from McDonalds. Some potential external problems that may arise during future expansion are that local and international competitors are free to establish big stores due to revision f the law and TRU needs to educate the Japanese consumers to change their buying habits. Internal problems could include over-expansion and possible distribution and logistic problems. References Pereira, J., Zimmerman, A., 2004, "Toys 'R' Us Suppliers Pitch In; Retailer, on Auction Block, Approaches Holiday Season With an Arsenal f Exclusives" in: Wall Street Journal. New York, N.Y.: Nov 10, 2004 Toys R Us wants out f toys http://www.taipeitimes.com/News/worldbiz/archives/2004/08/13/2003198593, retreived: 29. Nov. 2004 http://www.hawaii.gov/dbedt/ert/cp/japan.html, retreived: 29. Nov. 2004 Pike, R., Neale, B., 2003, Corporate Finance and Investment. Madrid, Spain Toys "R" Us, (2000, October 3), Toysrus.com Announces Intent to Launch New e-Commerce Subsidiary in Japan Retreived: 29. Nov. 2004, from http://www.toysrus.co.jp/go/nr001003e.html, Alexander, A. J., (1997, May 2), U.S. Direct Investment In Japan: Another Dimension f The Economic Relationship : retreived: 29. Nov. 2004, from: http://www.jei.org/AJAclass/FDIinJ.pdf, Miller A. (2001), "Innovation in Japan", Ingenia, November-Issue 10, p 61-64 Ford, D. et al., (2002) The Business Marketing Course: Managing in Complex Networks. Chichester: John Wiley & Sons. Harrison, van Hoek (2002), Logistics Management and Strategy, Prentice hall Read More