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Toys “R” Us Adaptation to Japanese Market

In: Business and Management

Submitted By besuarez
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Toys “R” Us is the world’s leading retailer of toys, children’s apparel and baby products. It sells merchandise in more than 1,550 stores in 35 countries, 849 stores are located in the United States, 170 in Japan, and 700 in other overseas locations. Toys “R” Us is divided into 5 corporate divisions which are Toys “R” Us, U.S., Toys “R” Us, International, Kids “R” Us, Babies “R” Us, and Imaginarium; accumulating between the 5 divisions an estimated business value of around $11 billion.

Japan is an Asian country with 377,835 sq. kilometers and an estimated population of a little over 127 million inhabitants, it is known as an economically powerful an stable country. Japan’s economy is among the 3 largest economies worldwide and is the second most technologically powerful economy. From a cultural perspective Japan has strong cultural values greatly influenced by Confucianism and western cultures.

When analyzing Japan from Hoftede Cultural dimension point of view it is clear that is low power distance culture with high collectivism, high masculinity, high uncertainty avoidance, and long-term oriented. This tendencies are reflected in marketing practices and consumer behavior, it also has a great impact on management as long-term oriented employment, high uncertainty avoidance, and long-life employment are expected from both employers and employees. Also managers have to be aware there is preference to local and high quality products, however there are some entry barriers and large competitors.

After TRU started its international expansion in 1984 it had to rapidly learn to adapt to different competitive retail situations that it entered. The main cultural barrier TRU faced when entering the Japanese market was a cultural employment obstacle, due to the high uncertainty avoidance and long-term oriented characteristic of the culture there were challenges in obtaining employees to work in the new TRU stores, mainly because of their unconditional loyalty to existing stores. Furthermore, there is an existing limit on the amount of employees allowed per store (50) regardless of its size.

On the other hand, Japanese toy market is highly dominated by small specialty stores and general retailers, leaving large toy retailers a smaller share of the market, this added to the variable that larger stores based their strategies in larger volume with smaller profit margins made an almost unprofitable situation for larger sized stores.
Suppliers also represented an entry barrier into the Japanese market, wholesalers deal almost exclusively with domestically-made products and were unwilling to enter into direct deals with Toys “R” Us due to a significant difference in the negotiation practices, suppliers where used to the traditional Japanese way of making deals.

Among other barriers of entry are the lack of empty spaces for opening large stores due to the high degree of development and industrialization in Japanese cities, and the behavior of costumers. Japanese costumers place a high value on the quality of the product and a highly established name brand, making TRU’s everyday low price strategy not a good one for this specific market. Furthermore, Japanese costumers are highly loyal to highly established specialty stores and general retailers around their neighborhood; lacking interest as well in stores offering a large selection of products. Finally, there is always expected an exceptional costumer service where the employees have an expert knowledge of the product, but this implies a larger training cost per employee.

Toys “R” Us (TRU) was allowed to enter the Japanese retail market in 1991 after the “Daitenhō” or Big Store Law changed after restricting the opening of large stores in Japan since 1974, basically by stalling the entry in a reviewing process that could last for up to 10 years. With the change of the Daitenhō by Japan’s Ministry of International Trade and Industry, firms were allowed to establish large-size stores.

For TRU to gain acceptance among business people and consumers in Japan, McDonald’s Company of Japan purchased 20 percent of the TRU stores in that country, since both companies have similar target markets, resulting in cooperative selling strategies. McDonald’s entered the Japanese market in 1971, opening its first restaurant in an upscale district in Tokyo, Mitsukoshi. Through great marketing it was able to overcome cultural barriers, which will later apply in a joint alliance formed with Toys “R” Us in 1986.

TRU great expertise in adapting to new foreign markets allowed them to use the new acquired depth knowledge of the segment group of children and young families, along the market experience of issues regarding establishing distribution and supply channels, to successfully overcome the barriers of entry. Nevertheless, other influential factors in overcoming the barriers were the timing at when they enter the market greatly due to the recession period by which Japan was going through, more favorable political factors, greater effectiveness on advertising, and the competitive advantage of having a greater quantity and diversity of items in the stores.

There were alternative modes of entry evaluated during the entry process such as direct exporting, foreign direct investment, and franchising. All of them presented some flaws in adapting to the behavior of the Japanese consumer and overall culture of the country. Direct exporting represented a high cost of goods and eventually a higher selling price, on the other hand franchising was also a setup for failure due to different wage policies and working conditions. Therefore, the most secure way of entering the Japanese market was through an strategic alliance.

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