Differences of Japanese Distribution System and Marketing from Other Countries - Term Paper Example

Japanese Distribution System & Marketing Strategies of the of the The focus of this study shall be on distribution system and marketing strategies of Japan. There would be specific characteristics highlighted that differentiates Japanese distribution system from other countries. The distribution system holds importance while structuring marketing strategies, since it denotes transfer of products or services from manufacturer’s end to customers. In Japan, strict control or regulations is exercised on distribution system. This restricts entry of foreign players and is a matter of concern for international marketing managers. On the other hand, high specialization of products or services also can be regarded as a challenge faced by international players. A highly complex distribution system of Japan forms a loophole in context of long-term sustainability. This study would further analyze trends in consumer demand that can be associated with efficiency of distribution system. There have been certain emerging trends in the distribution system, which would prove to beneficial both for foreign and domestic players. Introduction This study shall revolve around distribution systems and marketing strategies followed in Japan. The distribution system can be an obstacle for international marketing managers while selling products or services in Japan. A controlled distribution system is adopted in Japan, which is regulated by the government. There is another obstruction faced by Japanese distribution system i.e. price fixing. A wide base of wholesalers and retailers can be observed in Japan which poses a major challenge to foreign companies. The concept of intermediaries is common in case of Japan, where products are transferred from large wholesalers to small retailers. In the past few years, there have been a lot of criticisms about efficiency of Japanese distribution system. The international clients have witnessed difficulty in terms of accessing import markets of Japan. An inefficient distribution can be a root cause behind trade barriers. There are wide array of small shops located in Japan, and each of these shops possesses small percentage of workers. Another characteristic of Japanese distribution system is that products being manufactured have to undergo distinct layers of intermediaries. Marketing strategies and distribution system needs to be effectively designed so as to ensure that products or services are easily accessible by target group. On the other hand, distribution system also plays a vital role in export or import of goods. The growth of small-scale firms in Japan has resulted into a complex distribution system. These firms dominate the entire market place, and eventually initiate a decentralized distribution system. A vertically integrated distribution system is necessary in order to facilitate rapid transportation of goods from manufacturer to end user. This study shall highlight key issues regarding Japanese distribution system which is degrading its level of efficiency. A further analysis would be exhibited in order to determine implications of such issues on international marketing managers. The presence of large number of wholesalers is also beneficial in many circumstances. For instance, wholesalers in Japan deal with multiple importers and manufacturers. Hence, limited percentage of shipments needs to be made by manufacturers to such wholesalers. This in turn results into dispersed distribution costs amongst importers and manufacturers, thereby, initiating low-cost delivery. Though the distribution system of Japan is decentralized but there is desirable level of integration maintained within the system. For instance, manufacturers of Japan deal with few wholesalers, whereas the latter communicate with wide range of retailers. The Japanese stores are known for its less shelf-space and hence goods return is a common approach observed in Japan. This mechanism might prove to be beneficial for retailers and manufacturers, but it is a loss in context of consumers since they are subjected to rigid retail price. Manufacturers in Japan used to exhibit direct control over wholesalers and retailers. With regulatory changes and economic recession, shift of power has been witnessed towards retailers. Thesis Statement The thesis statement for this study shall be – “current issues or trends observed in distribution system and marketing strategies of Japan, and its impact on international marketing managers”. This statement would form the basis of this particular analytical study. Theory & Literature Review Theories on distribution channels According to Yan (2011), the distribution channels form the basic pathway between manufacturer and consumer. Traditional distribution channels were highly focused on earning profits. There are certain guiding principles for choosing a particular distribution channel. When a manufacturer enters into a competitive market it is advisable to sell products through retailers. The direct sales channel in a competitive market place might result into a loss in the initial stage. In overall context, there are two forms of distribution channels such direct sales to customers and use of intermediaries. The intermediate channels which are used by a manufacturer are wholesaler, retailers, other distributors, etc. On the other hand, direct selling in B2C is when customers directly purchase goods from manufacturer. The distribution channel’s performance can be improved through appropriate service and pricing. In business markets, buyer-seller relationship is likely to be affected by information exchange, legal bonds, adaptations by sellers and buyers, cooperation, operational linkages, etc. When there is intense competition between retailers, then manufacturers are not expected to benefit through any kind of channel coordination. The dual-channel distribution system has also gained significance in the market place. This kind of supply chain usually comprises of two components such as direct online channel and traditional retail channel. The dual channel based distribution is an effective measure to control competition due to its extent of market coverage (Yan, 2011, pp. 637-639). As per Wagner, Eggert & Lindemann (2010), multi-channel distribution network is basically used to establish integration between different channel partners. However, challenging issues linked with distribution system is difficulty in establishing synergy amongst channel partners. The traditional distribution channel is a common phenomenon in a monopoly market, where product flows through manufacturer traditional retailerpotential customers. In this distribution system, decisions are eventually made by retailer and manufacturer. On the basis of Stackelberg model, it can be stated that manufacturer serves the purpose of a leader of setting the wholesale price. This price is used by traditional retailer so as to maximize profit margins. A direct channel is used by customers in order to control costs. This form of open channel is commonly observed in context of business to business sales. For fast-growing companies, hybrid distribution systems are a common approach where manufacturer deals with retailer, as well as with distributors, as highlighted in Appendix 1. This approach enables a producer to efficiently manage business to business and business to consumer sales (Wagner, Eggert & Lindemann, 2010, pp. 736-744). Marketing Theories According to the authors Pringle and Huisman, (2011), the marketing theory of porter five force analyses helps a company in understanding its position in the competitive market. With the help of this theory, a business develops its marketing strategies for establishing its position in the market. This theory highlights five important forces through which a firm can evaluate its business environment. Suppliers’ power helps in accessing the contribution of the suppliers in driving various costs of the company. Based on the products and services, the suppliers impose their bargaining power (Pringle & Huisman, 2011, pp. 39). Following the views of the authors Porter and Heppelmann (2014), buyers’ power defines the contribution of the customers in lowering down the price of products and services. It also highlights the costs which buyers have to incur for switching one company to another. Competitive rivalry helps in analyzing the competitors of a firm and their positions in the market. Large number of competitors reduces the power of the company. Evaluating substitute products and services, a firm analyses the competition. In the competitive business environment most of the new companies experience threats while establishing their business. The threats are analyzed by a firm in detailed for developing its business efficiently (Porter & Heppelmann, 2014, pp. 11). As per the authors Hussain, Khattak, Rizwan and Latif, (2013), the theory of Ansoff Matrix facilitates company in developing effective strategies and plans. By implementing this theory, a firm develops a framework which helps the organizational members in achieving their target. This matrix is divided into four divisions like market penetration, market development, diversification and product development. All of these divisions are the strategies which a company incorporates for its growth and development. In market penetration strategy a firm tries to increase its market share by enhancing the sales of its products or services. In this strategy, the company focuses on acquiring new customers. The strategy of market development emphases on the business expansion in different places, segments, markets etc. The product development strategy influences the company in producing new products and services. The authors stated that with the help of this strategy a firm can increase its range of offerings. This strategy focuses on the growth of the company in existing market. In the diversification strategy the organization emphasizes on growing its market share by launching new products and services in new market (Hussain, Khattak, Rizwan & Latif, 2013, pp. 198). Current Issues & Analysis Consumer demand and efficiency The distribution system of Japan faces several issues for the demand of the consumers. The service of distribution depends largely on the demands of the consumers. The companies operating business in Japan are able to produce huge amount of goods and services but the Japanese have very low demand. This negatively affects the production and growth of the companies in Japan. The people of this country have a tendency of saving money more than spending it. They prefer to keep their money in banks and as a result of this their purchasing habit is less. Unusually low amount of income is spent by Japanese for living their life. Presently the Japan is facing recession and for that reason also the spending capacity of the Japanese have become very. The present economic condition of Japan is shown in appendix 2. As a result of this the firms of Japan are not able to generate high revenue. Moreover the companies require in following complex distribution system for which they have to invest huge amount of times and money. Low volume of sales and profit create problems for the companies in investing money for maintaining the complex distribution system. Consumers of this country are highly concerned about brands (Wang, Lee, Wu, Chang, & Wei, 2012, pp. 36). They like to purchase quality products and services. The companies of Japan are highly concerned about this and they try to satisfy the customers by delivering quality products on time. But in many cases it becomes difficult for the firm in satisfying the requirements of the Japanese customers. This is because of the complex distribution system present in Japan. Huge amount of time is consumed in the distributing process practiced in this country and for that reason the products or services do not get delivered on time to the customers. It creates negative impression about the company or the brand and as a result of this the sales of the firm get reduced. Distribution variety and exclusion The complex distribution system of Japan creates several issues for the companies in distributing their products at a low price to the customers. Mainly the distribution system of Japan relies on the manufactures, large wholesalers, small wholesalers, retailers and customers (Nizam & Hoshino, 2015, pp. 40). When the goods and services pass from different phases of distribution system then its prices keeps on increasing. As a result of this the companies experiences several negative impacts and its profit becomes low. The business environment of Japan is characterized with different types of industries. The firms of these industries follow different types of distribution systems for operating its business in Japanese market. For example in cosmetic industry, the companies manufacture same types of products. Many cosmetic firms set up their own retail outlets for selling their products. The cost of establishing retail outlet is high in Japan and for this reasons the most of the companies make tie ups with the retailers for selling their products. Sales persons are kept by the companies for directly selling their products without interferences of any intermediately. The FMCG firms sale their products through various retail stores. The products of these companies have their own distribution channel. In the Japanese market there are some specific retailers who sell the products of particular companies. The firms often differentiate the distributors as primary and secondary. Other than product manufacturing process the organizations need to focus more on their distribution system. The complex distribution system of Japan creates difficulties for the companies in selling products to the customers. Various companies operating in this country follow different types of distribution system for which often the foreign companies become confuse about the distribution system of Japan. Ineffective distribution system leads to the failure of the company in satisfying customers and controlling its various costs. The present distribution system of Japan is prohibiting the foreign companies in controlling the market. The distribution channels are system are controlled and regulated by Japanese government which makes the distribution process complex. Deceptive differences The differences can be observed in various industries based in Japan. It is observed that Japanese distribution system focuses more on form rather than functional attributes. There are similar consumer preferences and manufacturing technology witnessed in context of Japan and U.S. automobile distribution system. The Japanese distribution system is highly distinct from European countries or U.S. There are certain distinct characteristics of Japanese distribution system such as a framework which is dominated by middle-men and small retailers, strict laws regulating overall distribution system and presence of a unique culture which shapes business philosophy. The aspect of middlemen intervention can prove to be an advantage for a company but can simultaneously degrade profit margins. Japanese retail stores are comparatively more in number, which requires additional support from multiple wholesalers (Qiang, Ke, Anderson & Dong, 2013, pp. 188-190). The small retail stores located in Japan mostly deals in food products. However, in current scenario, small retail stores of Japan are being replaced with specialty and larger discount stores. The differences remain the same in terms of offering frequent deliveries to retailers and consumers. Manufacturers are highly dependent on distribution partners as well as wholesalers, in order to accomplish set targets. Cumulative rebates can be considered as a deceptive difference which is observed in context of Japanese firms. The distribution channel in this country is highly based on such cumulative rebates (Johnston, Khalil, Jain & Cheng, 2012, pp. 36-40). These rebates are basically accessed by retailers, dealing with manufacturers. The growth of small-scale firms has influenced manufacturers to maintain healthy relationship with distributors. Japanese channel structure is highly complex, with external control and barriers to new entrants. The distribution system is influenced by industrial keiretsu, where imported goods or Japanese trade is being controlled by an external force. Trends on distribution system in Japan The retail industry of Japan has revolutionalized overall distribution network of the country. There are current technological trends which have upgraded efficiency level of distribution channel. However, the distribution network of Japan is faced with various crises in terms of protection standards, information technology and macroeconomic situation. These protection standards encompass permits and licenses, which imposes strict regulations on retail development. For instance, growth of hypermarkets in Japan is regulated by local authorities and also needs to be aligned with Location Law (2000) on large-scale retail store. Information technology enables manufacturer to acquire information on consumer taste and preferences. The online sales platforms have been developed in order to address fluctuating consumer needs. On the other hand, percentage of middle men is eradicated from distribution system due to macroeconomic trends. The trends in distribution system are closely knitted with growth of retail sector in Japan as outlined in Appendix 3. Distribution keiretsu is the common approach which is followed in the country, where prices are standardized so as to ensure that there is no such competition based on price. This form of distribution system trend is observed in case of product specialization and oligopoly structure (Yan, Guo, Wang & Amrouche, 2011, pp. 20-24). The marketing arrangements are highly intense in the country with barriers for foreign players. These international players are not able to enter this competitive market place due to high distribution costs for new entrants and high specialization. There have been some developments made in relation to virtual relationship, which has enhanced efficiency level of distribution system. This approach has eradicated traditional keiretsu framework and shifted focus towards a flexible system. The focus is currently on direct interaction with customers so as to ensure elimination of traditional tariff barriers (Jain, Khalil, Nhat-Hanh Le & Ming-Sung Cheng, 2012, pp. 525-530). Japanese Government has supported foreign access, thereby increasing percentage of imports. There are different channels used such as direct mail, online platform, etc., so as to facilitate imports. Economic recession in the region can also be stated as a cause behind decreasing traditional distribution channels. Your Topics Implications for Intl marketing Managers The international marketing managers need to put huge effort for distributing their products properly in the Japanese market. They should perform various practices through which the companies are able to attract large number of Japanese. Interesting advertisement, developing products as per the requirements of Japanese, caring their values etc will help the firms in acquiring more customers. By this process the companies will be able to increase their revenue and it will help them in investing more in distribution system. The international marketing managers will require analyzing the business environment of Japan in detailed before developing appropriate distribution system. The managers should be concerned about the brand value of the company experiences benefits of its distribution system. The companies can develop distribution team for monitoring the distribution process. By this way they can reduce the unnecessary delay of distribution process for keeping up the brand image of the firms. Rather than depending on wholesalers and retailers, the foreign companies can set up their own distribution channels for providing products and services to the customers on time. The international managers have to select proper distribution channel based on the industries in which the companies are operating its business. They can also develop good relationship with the Japanese retailers for reaching maximum number of customers. Global marketers can be successful only when they are able to determine pros and cons linked with distribution system of a geographical region. Distribution channels are a vital component within the marketing mix. Global marketers should never assume that structure of distribution channel in domestic market would be similar to that of foreign markets. The distribution patterns and structures are likely to get affected by resistance towards change, market size patterns, and the trend of direct marketing (Olsson, Gadde & Hulthén, 2013, pp. 1135-1139). While entering into foreign markets, marketing managers should well analyze direct sales channels prevalent in the location. However, apart from structures or forms, consumers play a significant role in rejecting or accepting distribution channel. In various emerging markets, there is still resistance towards change, which was commonly observed in Japan. The influence of culture is witnessed in consumer market segment (Freng Svendsen, Haugland, Grønhaug & Hammervoll, 2011, pp. 520-528). There are many cultures where customers are highly rigid towards accepting any new product or service. This results into failure of a distribution system. International marketing managers should be able to decide which of the distribution channels can be more effective. There are certain factors which can be correlated with selection of distribution channels such as target market across selected country, specific goals in context of profit margin, volume and market share, organizational or financial commitments, and characteristics or length of distribution channels. International marketing managers would be able to prove their competency only when they are capable enough to keep channel partners highly motivated. Conclusion As per the study, distribution system is a key component which drives success or growth of a company. There are different approaches which are adopted by firms in order to distribute their products or services to end users. The traditional distribution channel has undergone certain changes due to recent developments made by government. Technological advancements are one such factor which has altered basic structure of distribution system. In earlier years, Japan used to follow traditional distribution system but it was dependent on other external factors such as price-fixing, entry barriers for new players, etc. This mechanism has currently been changed due to government intervention in the process. Japanese government has reduced trade barriers mainly in relation to established players entering within the market place. The recent trends observed in Japanese distribution system are high involvement of middle-men, so as to reach out to wide range of retail stores. In Japanese culture, people rely more on retail stores rather than directly purchasing products online. However, this trend has also been subjected to certain changes due to growth of online platform. A concentrated distribution system is a major difference which distinguishes U.S. based distribution system from that of Japan. The degree of external control can also be regarded as another element which to certain extent excludes foreign players from entering this country. International marketing managers should be highly cautious about differences in distribution patterns, without reflecting upon any assumptions. References Freng Svendsen, M., Haugland, S. A., Grønhaug, K. & Hammervoll, T. (2011). Marketing strategy and customer involvement in product development. European Journal of Marketing, 45(4), 513-530. Hussain, S., Khattak, J., Rizwan, A., & Latif, M. A. (2013). ANSOFF Matrix, Environment, and Growth-An Interactive Triangle. Management and Administrative Sciences Review, 2(2), 196-206. Jain, M., Khalil, S., Nhat-Hanh Le, A. & Ming-Sung Cheng, J. (2012). The glocalisation of channels of distribution: A case study. Management Decision, 50(3), 521-538. Johnston, W. J., Khalil, S., Jain, M. & Cheng, J. M. S. (2012). 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Appendices Appendix 1: Hybrid distribution channels (Wagner, Eggert & Lindemann, 2010, p.744) Appendix 2: Economic condition of Japan (Yan, Guo, Wang & Amrouche, 2011, p. 24) Appendix 3: Growth in Japanese retail segment (Yan, 2011, p. 640) Read More