Analysis of Toys R Us Case in Japan - Term Paper Example

? Analysis of Toys R Us Case in Japan Introduction In the 1990s, When Toys R Us was making its efforts to enter into Japan, and it was considered to be a difficult notion to penetrate by foreign companies into Japan due to its network of operational laws and regulations on importation. For instance , for large-scale retail stores like Toys R Us , the Japanese law namely the Large-Scale Retail Store Law could be a hindrance and could make substantial delay in the opening of a retail store , may minimise its size and compel it to windup early and also laid restrictions on the number of days such stores can be kept opened. (Winer 2007:349). Further, Toys R Us also witnessed a stiff competition from local wholesalers and retailers of toys in Japan. This research essay analyses the issues involved in the entry of Toys R Us into Japan and the challenges witnessed by it and how it had overcome all these hurdles in detail. Market Japanese toy market remained highly focused locally and fragmented. Almost all the toy shops in Japan were owned by Japanese, and they purchased the toy from the wholesalers at the range of about 75% to 80% of the suggested price offered by manufacturers, and they never sold below the suggested price. Japanese toy market was dominated by two national players namely Marutomi and Chiyoda, which owned about 800 stores and with an annual turn over Y100 in 1991. During the 1990s, the whole-sale market for toys in Japan was marked by its features like long-standing associations with retailers and fragmentation. There were about 70 affiliated distributors who acted as a connecting link between retailers and manufacturers. These distributors also acted as a barricade to foreign companies thereby making it arduous to accomplish adequate scale in either retailing or manufacturing to cover up their cost of investment. About Y 83,724 per annum (US$650) was spent by Japanese families on leisure and health products in the year 1992. In Japan, there were about 39 million households, which graded Europe, Japan and the United States as one of the three wealthiest and largest markets for leisure products. Further, Japanese market was known for its preference for the quality and by price and demonstrated a choice for well-known brand name products over not –known products (Johanson 2006:183). In 1989 , Toys “ R” Us made its first attempt to enter into the Japanese toy market which was then controlled by small general retailers of tiny specialty stores .As per Bank of Japan , the annual growth in the retail toy market in Japan grew 94% while GDP of Japan at an annual rate of 7% during 1970s. Further, toy market in Japan was ranked as the second largest in the globe trailing to U.S.A and in 1991; the worth of Japanese toy market was estimated at $7.1 billion. In 1991, about 29,413 stores were in operation in Japan and toy sales occupied a major share in their aggregate sales. Further, about 11,628 stores were exclusively dealt with toy, computer games and hobby specialty products. Further ,there were about 12,582 small general retail shops , about 2772 convenience stores , 1227 large toy specialty retail shops and there were about 500 bigger general stores, which had the significant share of their revenues comprised from the sale of toys. Toys R Us entry into Japan was well timed in corresponding with antisturctural restriction efforts by then Bush administration in U.S.A. Looking for positive PR , the Japanese government compelled the regional government to soften the “ Big Store “ laws under which the present retailers in Japan could exercise the veto to the entry of a large retailer into their province. Toys R Us first store in Japan was established with an offer of more than 18,000 toy items as inventory located in 3,000 square meters, which was regarded as the best illustration of what has come to be labeled in U.S.A as a “category killer.” By establishing an awesome advantage, it was aimed to bar the competitors from establishing opposing stores before they started. (Johanson 2006:185). As per Japanese statistical report in 1991, the annual sales for sporting goods, toys and musical instruments were about $25 billion. Cultural Issues Toys R Us, in the early 1991, though regarded as a category killer in Europe and U.S.A witnessed many cultural issues while making its entry into Japanese market. Toys R Us not only witnessed opposition from Japanese retail industries but also Japanese media also condemned it as the “black ship of Kawasaki.” Japanese toy manufacturers, including Nintendo refused to deal with Toys R Us during its entry and the multilayered distribution channel also appeared to be against Toys R Us thereby blocking its endeavors and thereby affecting legendary high consumer prices in Japan. In Japan, Toys R Us took the help of Fujita, who earlier made the door opened for McDonalds in Japan. Fujita’s political experience, retail experience, a unique understanding of Japanese and American cultures and his vision which made the McDonald’s entry as a record success into Japan. Hence, the decision to have Fujita as the Ambassador for Toys R Us in Japan helped to overcome any culture issues in its entry into Japan. With the help of Fujita who was a heretic helped Toys R Us to blow a hole in the Japanese retail industry which was underdeveloped during 1990s. Toys R Us was able to overcome initial obstacles and was responsible for introduction of the concept of one-stop shopping though products were sold through many layers of medium of distribution thereby smashing the cultures that are affiliated with toy market in Japan.( Spector 2005:126). As per Yoshinobu Sato, the failure and success of foreign retailers in Japan are marked by the necessity of foreign retailers to introduce local cultural values into the store operations and channel relationships if they wish to have success in their efforts in Japan. (Dawson & Lee 2005: 3). Toys R Us adhered to Yoshinobu Sato’s advice in letter and spirit. Effective communicating across cultures MNCs (Multinational companies) are not carrying on their business in an identical style in each country they operate and this differs from a nation to a nation in which they operate. There arises a necessity to train business managers to comprehend about cultural clashes while communicating across cultures. Business attains maximum results when managers from various walk of cultures find new approaches to old issues offering ways out by mixing cultural outlooks and evaluating the issues at hand from one another’s side. It is necessary to communicate across cultures in Japan as Japanese are homogenous, whereas Americans are not culturally or racially homogenous. Toys R Us initially witnessed a lot of opposition from wholesalers and retailers of toy business. Further, they also witnessed stiff opposition for the expansion of their chains. Moreover, finding a suitable site or renting a suitable site was also found to be highly capital intensive due to real estate bubble that existed in Japan in 1990s. There was a direct threat to its discounted price policy as any effort made by Toys R Us to buy directly from manufacturers by avoiding wholesalers, mainly to win a price incentive from the manufacturers was likely to be thwarted by Japanese toy wholesalers and retailers. However, by collaborating with the McDonald in Japan, Toys R Us was able to manage these cultural issues by communicating properly with various stakeholders. According to Gudykunst (2003:1), the main objective of cross cultural communication is to evaluate communication styles across cultures. As per Hofstede (2001), there are five fundamental dimensions, which can explain the cultural differences between varied national cultures. Different nations are given an index according to different dimensions. For instance, US was given a score of 200 in the individualistic –collectivistic dimension which is much more than Japan, which scored only 12. The greater the score, the more individualistic the region or the country will be. Cultural Diversity Multicultural diversity is a concept which encompasses the economic status, age, family type, education, personality type, gender, religion, race, sexual orientation and geographic origin. Further, diversity means everything that makes one diverse from others, which include work styles and communication styles and further, all employees can now subscribe into the effort of a culture that sustains diversity. In a research study conducted by ‘The Society for Human Resources Management ‘revealed that diverse workplace had a positive effect on the organizations’ profitability and recognized “diversity training” as a vital component of diversity efforts to improve the bottom-line of a business. Toys R Us entry into Japan had posed some cultural challenges especially when transferring a multicultural workplace in the U.S.A to a corporate culture based on Japanese culture. However, Toys R Us is able to address these cultural issues by following an apt recruitment strategy by giving more priorities to Japanese in their outlets to add more local flavor to their business strategy. (Nixon 2000). Business Strategy Any foreign company which wishes to start or open a departmental store, a supermarket or discount store in Japan will definitely witness local hard fast regulations, bureaucratic obstacles, taxation issues, local rules for licensing, employment issues and stiff opposition and resentment from owners of small store owners from the Japanese community. It is to be noted that not all foreign companies entered into Japan had achieved success in their efforts. For instance, Wal-Mart entered into Japan in 2002 with an acquisition of a Japanese retailer namely Seiyu Ltd, a supermarket chain with about 400 stores. After being five years in Japanese market, Wal-Mart’s Seiyu stores had retrenched their employees and suffering from continuing losses and the values of Seiyu’s stock were on the decline. Thus, a majority of the Western general –merchandise retailers observe that they must balance the demands of Japanese consumers for freshness and quality with their “volume discounting technique” which should fit into Japanese cultural anticipations. Foreign companies should be also aware that retailing in Japan is extremely competitive and despite these issues, large-scale European and American volume discounters have started to transform retailing in Japan by making adequate strategies to penetrate into Japanese market.( Schaffer , Agusti & Earle 2008 :293). When Toys R Us wanted to enter into Japan, they want to have a Japan partner. An allying business partner may be horizontal involving collaboration between the two companies in the same industry like the Bayer and Schering-Plough consented to sell and market each other products in countries where each has existing marketing capabilities. Alliance may be vertical like Caterpillar consented to act as Land Rover’s lead global manufacturing services provider. In some cases, it may involve companies that are neither in the analogues' industry nor associated through the vertical chain. Thus, McDonald’s Japan and Toys R Us aligned together to form a business to establish Toys R Us stores in Japan which would have McDonald’s restaurant .Thus , association of Toys R Us with McDonald Japan helped it to makeover politically charged entry process in Japan as Den Fujita, McDonald’s Japan’s president had contacts with top politicians in Japan. Fujita had political know-how in Japan, expertise in the site-selection and had high business connections to overcome obstacles and pave the way to entry into Japan's market. It is argued that but for the help of Japan’s McDonald, Toys R Us would have found it difficult to develop this know-how on its own. (Besanko et al 2009:165). By subscribing to a stake in the success of Toys R Us Japanese venture through collocation of the Toys R Us stores and by acquiring twenty percent in the joint venture, McDonald had hit the two birds in a single stone as it was benefited with gaining of three-time customers for its restaurants along with Toys R Us store than as a standalone restaurant. (Besanko et al 2009:165). 2. Culture discussion details relevant Hofstede research of both American beliefs and Japanese characteristics likely to have influenced initial entry into Japan  YES    NO/not clearly explained   In his major work namely “ Cultures and Organisations “, Geert Hofsted , a Dutch professor has acknowledged the cultural pillars of over fifty national cultures, and he also included Japan and stresses out the differences and similarities that impact the method cultures relate to each other. He recognises Japan as a collectivist culture as it had three nations culture in its background namely Britain, Australia and United States besides its own. According to Hofstede, Japan is middle-graded on the global list of individualistic cultures. Thus, according to Hofsted, Japan has become more individualistic. He has employed Japanese illustrations of a collectivist’s society when he observed that “the maintenance of synchronization with one’s one's social atmosphere becomes a key virtue in collectivist societies.” (Rice2004:65). Further, before entering into Japan, Toys R Us had business operation in eight other nations. It applied the experiences it learnt from these nations, particularly those of its triumph in two other Asian cultures namely Singapore and Hong Kong. Hence, there was a willingness to adjust to local scenarios. For instance, although Japan’s corporate policy warranted that no super store could be less than 3000 square meters, the Japan government decided to that a new store in Himeji, could be allowed at 2,800 square meters and the subsequent stores could be even smaller. (Johanson 2006:185). I agree with the Hofsted observation Japan’s culture as “collectivist culture” as Toys R Us had the capacity to transform the toy industry in Japan and able to derive considerable profits in the process. Toys R Us could be able to capture the entire discount toy market in Japan by undercutting the suggested price. Toys R Us had just imitated its business practices in U.S.A and in Europe like starting large-scale retail stores, employing the buying power fostered by these super stores to bargain lower prices from toy manufacturers. However, Toys R Us understood that in Japan, basic structure of the retail sector made their traditional strategy almost incredible. 3. Discussion section addresses events, people and/or strategy which “turned around” first efforts, to explain your reasons for the turn around and whether or not you would have managed initial strategy differently.   Events Both MITIs reforms to the Large Scale Store Law and the Structural Impediments Initiative (SII) were introduced at the right time when Toys R Us entered into Japan. Two great impediments like the legal bar on the establishment of big chain stores and bar on the retail chain’s entry were removed and this facilitated Toys R Us to enter into Japanese market by taking advantages like happening in the retail sector in Japan in 1990s. With these developments, Toys R Us was certain that chain could easily achieve success in the Japanese market. People When Toys R Us wanted to enter Japan, they wanted to have either a Japan partner or a leader from Japan as the management was of the view that it would assuage the feelings Japan’s powerful bureaucrats and local interests. One of the qualifications cited by Toys R Us in selecting the Fujita to head its operation in Japan was the political acumen of the then President of McDonald’s Japan. Toys R Us sought the help of a Japanese partner to assist it to surmount some domestic issues like getting governmental approval under the Large Scale Retail Store Law. Further Toys R Us was of the view that Japanese government would help them if the local contents like employment for Japanese were there. Further, Fujita had expertise in real estates in Japan like identification, selection of stores and Fujita’s strong knowledge with MITI helped Toys R Us to penetrate into Japan's market. Strategy Toys R Us followed the same technique of purchasing from the manufacturer directly employing the sheer size of its outlets to win price concessions from the toys' manufacturers and to circumvent the wholesalers and to offer the toys at a discounted price to attract customers. Since the Japanese market preserved so many mannerisms, Toys R Us top management resolved to have a strong local alliance partner. However, while negotiating with some local players, Toys R Us understood that the both sides had different notions of how to run a business. Hence Toys R Us tried to find some strong, dynamic leader from Japan to lead their operation in Japan. Conclusion Initially, Toys R Us faced a lot of resistance from the local stores and wholesalers across Japan for the efforts in opening new stores as the tentative schedule of store openings started to postpone steadily. Further, Toys R Us initially suffered without any direct distribution deals straight from toy manufacturers in Japan, prevalence of high labour costs and land prices, which made the cost structure of the superstores in Japan almost incredible. Though they had planned to open at least six stores at the end of 1991, but the management was succeeded to open its first store in December 1991 only. Toys R Us expanded its operation steadily and its stores exceed above 50 in numbers in 1996 and its sales crossed over 100 billion yen exceeding the legendary Chiyoda’s turnover and Toy R Us had become the number one toy seller in Japan. As of today, Toys R Us is having 46 stores across the Japan and is having over 150 Babies “R” Us stores and Toys R Us stores on all the three major islands in Japan and also having two distribution centers. Though with sluggishness, Toys R Us in Japan is still growing with less than just 10 new stores opened in the last five years. (Besanko et al 2009:165). Top executives of Toys R Us in Japan pointed out that they were of the opinion that Japan was an unexploited market, easily competent of supporting five times more stores as were now in operation. At the same juncture, they disagreed the idea of competition coming to fill that niche before Toys R Us could block it. However, there were illustrations of other American companies in Japan that took a lead in the market share, then had optimistic and encountered that lead missed away, were becoming one among in the legion. While Toys R Us till date had demonstrated no inclination to give up its efforts, it is the still need of the hour to meet the challenges to be witnessed in the near future. The future challenges include not only increased competition but also possible positioning problem, increasing cost, consumer spending, deteriorating Japanese economy due to recent earthquake and Tsunami. (Johanson 2006:185). List of References Besanko D, Dronove D, Shanley M & Schaefer. (2009). Economics of Strategy .New York: John Wiley & Sons. Dawson, John A & Lee, Jung-Hee. (2005). International Retailing Plan and Strategies in Asia. New York: Routledge Francis & Taylors Group. Johanson. (2006). Global Marketing. New Delhi: Tata-McGraw –Hill Education. Nixon, Judy C (2000). America addresses work force diversity. (Growing Importance). Business Forum. Rice, Jonathan. (2004). Behind the Japanese Mask: How to Understand the Japanese Culture and Work. New York: How to Books Ltd. Schaffer Richard, Agusti Filiberto & Earle Beverley. (2008). International Business Law and its Environment .New York: Cengage Learning. Spector, Robert. (2005). Category Killers: the Retail Revolution and its Impact on Consumer Culture. Harvard: Harvard Business Press. Winer. (2007). Marketing Management, 3rd Edition. New Delhi: Pearson Education India. Read More