The Internationalization of Japanese Retailing
Roy Larke Professor, University of Marketing and Distribution Sciences Kobe, Japan
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Abstract
Retailing is now a global industry. The sector has splintered into domestically successful and internationally successful companies, with the latter growing steadily in number and in their scope of operations. Past studies of retail internationalization have tended to concentrate on the processes and motivations behind such developments. This research is based largely on the assumption that internationally active retailers are the exception rather than the rule. The world has since changed. Retailing has become an international activity with many companies seeking to expand across borders simply to maintain growth and escape market saturation in their own companies. Japanese retailers remain, however, the exception.
Unlike their Western counterparts, most Japanese firms do not seek performance and growth as a means to satisfy shareholders. Constant significant growth is, therefore, not a major objective for the majority of firms. There are few examples of internationally active Japanese retailers, and those that do operate overseas do so for very different reasons. While most non-Japanese companies operating in an international field look to recycle profits for further local expansion in international markets, research suggests that Japanese firms view overseas stores largely as low cost cash cows to generate cash for the domestic parent. There is one, new, significant exception to this rule, Fast Retailing, but although Fast Retailing is clearly a Japanese firm, its operating objectives and strategy is, arguably, most un-Japanese in nature.
Within this global perspective, Japan is still seen as the final frontier for many non-Japanese retailers. Japan has been painted as the most difficult developed nation market to enter and one where it is increasingly difficult to succeed. Such a picture has been contributed to not least by Japanese government agencies, politicians and academics, and this skewed perception has caused more than a few companies to overlook Japan. Yet Japan is the second largest market in the world. As Japan does not have the ethnic or racial diversity of the United States, and neither the market sophistication nor the consumer awareness that is normal in Western countries or even in many other Asian nations, arguably, Japan is the single largest homogeneous market in the world. It is not, therefore, somewhere that companies would ignore for simply economic reasons, and the psychological barrier to setting up, developing and succeeding in business in Japan is significant.
It is, however, a barrier that is rapidly being bypassed by many companies. With an increasing number of non-Japanese retailers entering Japan and a significant number finding overwhelming success in the market, it is clear that this is no longer a market that cannot be crackedÑif it ever was. The trend towards the internationalization of retailing in Japan is now unstoppable. Major global retailers such as Tesco and Ikea have ear-marked the market as their next big target. Such companies with established ambitions within Asia cannot ignore Japan, and, equally, the same companies cannot be said to be truly successful without adding the Japanese market to their country portfolio.
This paper aims to take a broad overview of the internationalization of retailing in Japan. The paper looks at how Japan was seen as a difficult and undesirable destination for international expansion in the past, and how various agencies sought to establish and maintain this image. It then expands upon the more recent history, and how certain retailers are proving not only successful in Japan, but also forcing the kind of industry wide changes which Japanese companies have desired, but have long been unable to implement themselves.
The paper will present a number of key factors that companies need to consider when entering the market. In particular, it focuses on the role of joint ventures, and suggests that, in a free market, joint ventures are often an archaic and somewhat risky business format. Differing cultural business objectives mean that the number of successful joint ventures is small in Japan, while the number of failures continues to rise. Conversely, the number of companies entering Japan on their own terms with their own capital grows monthly. The paper will illustrate various market entry strategies available to overseas companies wanting to enter the market, and discuss the issues that arise in working on the market for the first time.
Finally, the paper considers how future developments will unfold, as well as continuing problems and barriers to entry. Most significant among the latter of these, many Japanese politicians and academics seem to consider the internationalization of retailing in Japan as having major detrimental effects on local small retailers to the extent that it damages the economy as a whole. With the continuing re-alignment of the Japanese economy from its traditional non-competitive structure to one of open and active competition, such a problem is inevitable, but creates a growing pressure to restrict international entrance through political measures. On the other hand, there is are also growing expectations towards a small number of Japanese firms with international ambitions of their own.
