Essays24.com - Term Papers and Free Essays
Search

Wal-Mart's Japan Strategy

Essay by   •  January 21, 2011  •  1,647 Words (7 Pages)  •  4,224 Views

Essay Preview: Wal-Mart's Japan Strategy

Report this essay
Page 1 of 7

In-Depth Integrative Case: Wal-Mart’s Japan Strategy

1. Question: Do you believe Wal-Mart can be successful by circumventing the current Japanese distribution system?

The Japanese distribution system has two distinct characteristics: too many very small retailers and multiple layers of wholesalers. Japanese consumers prefer to buy fresh, high quality food and have the tendency to purchase goods in small amounts and at frequent intervals. Since real estate is very expensive in Japan, people live in very small apartments and they are not used to doing big shopping, because there is not much space to store things. The majority of small-sized retail stores are run as family businesses, and there are preferential tax treatments granted to these retail stores. In addition, there are regulations placed on large-scale retail stores.

Japan’s current distribution system is a huge barrier to Wal-Mart’s traditional way of doing business. Wal-Mart’s direct-supplier system could not be more different in its design, its business philosophy and its operations from Japan’s multi-layered system. There are two options, either Japan’s system will change, or Wal-Mart will have to adapt.

In order to be successful, Wal-Mart will have to create an unassailable competitive advantage in the Japanese market, Wal-Mart will have to create a logistics and distribution system that is lower cost and more efficient than anything currently in use in Japan. Wal-Mart’s distribution strategy is likely to follow a multi-stage, multi-method approach. These different methods may be approached as parallel strategies. While the long term vision will be to change the nature of the supply chain process and fully implement their Retail-Link system, it will take time to make this transition.

Initially, Wal-Mart will have to work through the multi-layered Japanese distribution system, treating wholesalers much as they would suppliers. Wal-Mart will have to work with the larger wholesalers to upgrade their technology capabilities. Several of the larger Japanese wholesalers are working hard to develop added value services for their retail clients. To be viable long term, they will have to prove that they are both more efficient and more reliable for retailers to work with than going direct to suppliers.

The second step in this process is likely to involve Wal-Mart acquiring a Japanese wholesaler. Finally, Wal-Mart will have to begin developing Retail-Link with their largest suppliers, particularly the ones they have relationship with either in Europe (UK) or the U.S. This will be a slow process and may take several years before it is initiated as the software for the Retail Link will first have to be adapted to the Japanese language.

2. Question: Do you agree with Wal-Mart’s entry strategy? What are some of the inherent risks? Do you think that a faster market entry would be more effective?

I believe Wal-Mart’s “bit-by-bit” approach is the right way to go in Japan. Concerned over past market-entry failures in Mexico, Germany and South Korea, Wal-Mart deliberated for over four years before purchasing a minority stake (34%) in Seiyu in 2002. In fall 2005, Wal-Mart increased its stake to 54% and made Seiyu a subsidiary. Wal-Mart believes that getting to market faster doesn’t necessarily equate to being better. The goal is to install Retail Link, a “Just In Time (JIT)” inventory replenishment and supply chain management system shared between retailer and supplier that effectively eliminates the wholesaler and speeds up payables and receivables collections. The acquisition of Seiyu offers Wal-Mart leverage with local manufacturers and may help to negotiate direct deals.

However, there are risks associated with this slow entry strategy. The biggest threat to Wal-Mart in Japan will be from domestic competition like AEON and Ito-Yokado. Local rival AEON, Japan’s No. 2 retailer, expects to have 100 Wal-Mart style supercenters in suburban areas by the end of 2007, up from 4 today. AEON also began a campaign to eliminate all middlemen from its supply chain and was able to decrease prices approximately 10% below the local average. Carrefour, the world’s second largest retail chain, entered the Japanese market a month earlier than Wal-Mart with the goal to take away market share before Wal-Mart had a chance to streamline with Seiyu. However, growth of Carrefour's Japanese business has been slower than expected. In 2005, Carrefour sold its 8 hypermarkets to AEON group. But stores still use the Carrefour name and brand. Most recently, on March 9, 2007, AEON made a $535M deal to take 15% wedge of supermarket chain Daiei to become the No. 1 retailer in Japan. This move makes both companies more competitive by increasing their economies of scale.

Slow sales indicate Wal-Mart’s style isn’t catching on with local consumers yet. Since taking a stake in Seiyu in 2002, the chain’s struggling Japanese operations have lost well over $1 billion. A stake in the Daiei chain might have changed Wal-Mart’s fortunes. Daiei was very important for Wal-Mart from a strategic point of view. It would have given Wal-Mart a huge footprint in Japanese retailing. Economies of scale from the deal would have enabled Wal-Mart to get closer to achieving its “everyday low pricing (EDLP)” model. In 2005, Wal-Mart missed already once the opportunity to make a deal with Daiei. At that time, Daiei was under the control of Industrial Revitalization Corp. of Japan (IRCJ), a government-backed body charged with acquiring, turning around, and selling distressed companies.

Ito-Yokado, Japan’s leading supermarket retailer is convinced that quality is what sells in Japan. Ito-Yokado is not offering “everyday low prices”, but higher quality. Wal-Mart experienced already problems with its “everyday low prices” strategy. Japanese consumers are used to weekly flyers (chirashi) that advertise discounts on “selected” items. Wal-Mart still has to streamline its operations in Japan and push prices low enough to undercut rivals to provide consistently rock-bottom prices. Seiyu dropped its weekly flyers for a few weeks, because specials didn’t fit Wal-Mart’s model, but when the sales started falling the fliers were quickly reintroduced.

3. Question: In your opinion, what is the single most important thing Wal-Mart

...

...

Download as:   txt (10.9 Kb)   pdf (132.2 Kb)   docx (12.8 Kb)  
Continue for 6 more pages »
Only available on Essays24.com
Citation Generator

(2011, 01). Wal-Mart's Japan Strategy. Essays24.com. Retrieved 01, 2011, from https://www.essays24.com/essay/Wal-Mart's-Japan-Strategy/30275.html

"Wal-Mart's Japan Strategy" Essays24.com. 01 2011. 2011. 01 2011 <https://www.essays24.com/essay/Wal-Mart's-Japan-Strategy/30275.html>.

"Wal-Mart's Japan Strategy." Essays24.com. Essays24.com, 01 2011. Web. 01 2011. <https://www.essays24.com/essay/Wal-Mart's-Japan-Strategy/30275.html>.

"Wal-Mart's Japan Strategy." Essays24.com. 01, 2011. Accessed 01, 2011. https://www.essays24.com/essay/Wal-Mart's-Japan-Strategy/30275.html.