62379030-Toy-R-US-in-Japan-Case-study.pdf

Toys “R” US in Japan

 Vinsen Poonoosamy  W. Carr  A. Mag

Presentation - Overview  Introduction  Toy R Us background/ Japan in brief  Impact on Management Practices  Entry Barriers

 Competitive Advantages  Internalizing vs. Licensing  Future Strategy – Japan and USA

 Conclusion

Toy “R” Us background World's leading retailers of toys, children's apparel and baby products  Sells merchandise in more than 1,550 stores 

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Has 5 Division     

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849 stores in the United States 700 international stores in 33 countries 170 stores in Japan Toys R Us, U.S. Toys R Us, International Kids R Us Babies R Us Imaginarium

Estimated business value: $11 billion E-commerce sites including Toysrus.com, Babiesrus.com, eToys.com, FAO.com and babyuniverse.com,

Japan In Brief Total Area: 377,835 sq km Population: 127,078,679 (2009 est.)  Ethnic groups: Japanese 98.5%, Koreans 0.5%, Chinese 0.4%, other 0.6%  Religion: Observe both Shinto and Buddhist 84%, other 16%  Economically powerful and stable  

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Among the 3 largest and wealthiest markets worldwide Japan is the second most technologically powerful economy

Strong Cultural Values  

Culture influence by Confucianism and western culture Strong Loyalty

Japan In Brief 

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Hofstede Cultural dimensions

Country

PDI

IDV

MAS

UAI

LTO

Japan

54

46

95

92

80

According to Hofstede, Japan’s culture has:  low power distance  High collectivism  High masculinity  High uncertainty avoidance  Long-term oriented

These are reflected in Japan’s Marketing practices and consumer behavior

PDI = Power Distance Index IDV = Individualism MAS = Masculinity UAI = Uncertainty Avoidance Index LTO = Long-term Orientation

Source: Geert Hofstede 2009

Impact on Management practices 

Factors Impacting on Marketing management practices in Japan 

Japanese Culture  Long-term oriented/high uncertainty avoidance  Life – long employment

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Market in Japan  Preference to local products  High Quality Product

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Competitors and Barriers  Wal-Mart  Political barriers  Large number of retail stores present in Japan

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Porter’s 5 forces need to be considered

Japanese market for Toys “R” Us 

Attractive Market Along with the US and Europe, is one of the 3 largest and wealthiest markets in the world for leisure goods  Ease of entry provided by Joint-Venture with McDonald in Japan 

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Cultural Obstacle Employment culture No more than 50 employees per store regardless of its size  Loyalty to existing stores  

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Strong competitors   

specialty stores general retailers occupy the largest portion of sales in Japan

Entry Barriers - Japan 

Japanese toy retail dominated by small specialty stores and general retailers 

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Wholesalers deal almost exclusively in Japanesemade products 

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Large toy retailers make much less sales than small specialty stores

Not specifically in foreign products.

Loyalty of suppliers Unwilling to enter into direct deals with Toys “R” Us due to their traditional way of making trades  Go through several layers of distribution  Cannot profit from low transportation cost for goods manufactured in Japan. 

Entry/Cultural Barriers - Japan 

Developed/Industrialized country 

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Hard to find empty space for opening large stores

Behavior of customers 

High purchasing power parity    

Values quality over low prices Values established brand name over lesser-known goods Everyday low price strategy does not work well in Japan Everyday low price also their company specific advantage

Barriers – Behavior of customers 

Behavior of customers 

Loyalty Towards the stores that they have visited  Primarily towards established specialty stores and general retailers around the neighborhood

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Huge selection of product but Japanese not interested in going into a giant store that has everything

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Expected exceptional customer service  Employees are expected to have an expert knowledge of products  Training cost  Long-term employees

McDonald in Japan 

In 1971 McDonalds entered the Japanese market

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first McDonald's in Mitsukoshi department , an upscale district in Tokyo

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Overcome cultural barriers ( to make hamburgers part of the Japanese diet )

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Joint alliance with Toys R Us in 1986

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Now has 3800 restaurants, earning revenue of approximately $4 billion a year (60% of the hamburger market)

Toys “R” Us - How they managed to cross entry barriers? 

Its excellent marketing strategy and experience in cracking foreign markets

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Joint alliance with McDonalds  

Benefited from the depth knowledge of the segment group of children and young families Market experience of issues regarding establishing distribution & supply channels

Toys “R” Us - How they managed to cross entry barriers? 

Timing was good because Japan was in recession

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Political factors from the Japanese government

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Competitive advantage of the store- 18,000 items

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Effective way of advertising

Alternative modes of Entry  Exporting: marketing and direct sale of domestically-

produced goods in another country  Foreign Direct Investment: the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel.  Licensing : permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks, patents, and production techniques

Would an alternative mode of entry work?  Direct exporting all goods from Toys “R” Us Japan is

not going to work due to high shipping cost.  Foreign direct investment is not going to work well

due to the Japanese culture  Franchising is not going to work either due to

different wage policy and working condition.  Strategic alliance is therefore the most secure mode of

entry in Japan

Competitive Advantages Problems associated in transferring it to Japan  Low Prices  Japan High Purchasing Power Index  Low Price might means Lower Quality  Product Selection  Japanese not amazed by huge product selection  Japanese know what they are looking for

Toys “R” Us - Alternative mode of entry  Direct exporting all goods from Toys “R” Us Japan is

not going to work due to high shipping cost.  Foreign direct investment is not going to work

well due to the Japanese culture  Franchising is not going to work either due to

…different wage policy and working condition.

Internalizing FSA vs. Licensing Why internalize Firm Specific Advantages?  Mc Donald  Family and children network  No need to spend extra cash in Market Research  Mc Donald’s Japanese Management Style  No need training new employees

Internalizing FSA vs. Licensing  Why not Franchising?  New Market Research and adaptation  Japanese want to do business in their own way

Toys “R” Us Future Strategy - Japan  Profit Driven  Do not exclude Japanese or US market  Should be innovative to survive

 Establishing better network  Wal-Mart not present yet  Mc Donald and Toys R Us compliment each other target market

Toys “R” Us Future Strategy - USA  Import & Sell Japanese Toys  Cheaper prices and larger product selection by Toys R Us  Too Costly for Wal-Mart

 First Hand Items by Toys R Us  Wal-Mart has small portion of their product

Conclusion  Japan: prospective and important market

 High Entry Barrier to Japanese Market  High Buyer bargaining power  Everyday Low Prices annoy Japanese  High Supplier bargaining power  High degree of rivalry  Threat of Substitute  Protected by law from large competitors such as WalMart  Licensing to Japanese local store not going to work

References  About Toys"R"Us, Inc.. 2010. http://www1.toysrus.com/about/  

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(accessed May 5, 2010). Chatterjee, S.R., and A.R.Nankervis. 2007. Asian Management in Transition: Emerging Themes. Houndmills: Palgrave Macmillan. CIA World FactBook – Japan. 2009 https://www.cia.gov/library/publications/the-worldfactbook/geos/ja.html (accessed May 5, 2010). Hill, C.W.L 2009. Global Business Today. Boston: Mc Graw Hill Irwin. Hofstede, G. 2001. Culture’s consequences. London : Sage. Japanese Culture -- A Primer For Newcomers. 2004. http://www.thejapanfaq.com/FAQ-Primer.html (accessed April 08, 2010). Johansson, J. K. 2006. Global Marketing: Foreign Entry, Local Marketing and Global Management. Boston: McGraw-Hill Publishing Group.

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