Case study: Wal-Marts rising sun? A case Wal-Marts entry into Japan 1.

Problems Wal-Mart is a retailer of consumer goods founded by Sam Walton in 1962. One factor that make Wal-Mart is different from its competitors is EDLP (everyday low pricing). Wal-Mart entried Japan firstly by joint-venturing with Seiyu. In 2008, the Company bought all Seiyus shares and become a wholly-owned Japanese subsidiary in Japan. However, with cultural misunderstanding, inability to carry out a low cost strategy, mounting pressures of competition, supply chain inefficiencies and Seiyus pre-Wal-Mart conditions has resulted in continuous losses for the retailer 2. Alternatives Wal-Mart had invested over $3 billion in Seiyus chain stores. However, what the retailer gained is perennial losses from 2003 to 2007 and the outlook is not improving. To address these problems, increase benefit and build the image in Japaneses customers, Wal-Mart applied some solutions: Alternative 1: Retail Link

In 2004, Seiyu installed Wal-Marts computer systems (Retail Link) in more than half of its 400 stores, which helped to enhance their inventory management and distribution. As well as Wal-Mart in the US, this technology shrank inventory lags close to real time. Also, the technology lets Seiyu

see exactly what customers are buying and what remains on store shelves, helping managers track inventory better. This is really a competitive advantage for Seiyu. Moreover, with this system, the Retailer can easy to realize the consuming trend in each period. So it can work with suppliers to ensure supplying enough commodities for customers. However, it didnt mean costing
the Company anything. Installing that system wasnt cheap. Besides, it required to have suppliers to make substantial investment to implement the new system. In short, this alternative has some following advantages and disadvantages: Advantages: Enhancing inventory management and distribution more effectively 1

Case study: Wal-Marts rising sun? A case Wal-Marts entry into Japan Disadvantages: Costing to set up the system. Requiring having the participation of suppliers.

Alternative 2: Layoff staffs

The company lays off 25% of headquarter staffs, including 1,500 employees and staffs. This method brings the company a reduction in overhead costs, which associated with payroll, benefits and insurance. Because the average salary in Japan is very high ($2,003 per month in the year 2005), so cut off a quite large number of staffs at that time help Wal-Mart save quite a lot of money. In another side, reducing middle classes will bring the Company more flexible in managing. Moreover, with this additional saving capital, the retailer may make it easier to compensate existing high-performing employees with additional pay, which really motivate employees in working. However, laying off employees also bring Seiyu some bad effects. First of all, it can create an environment of uncertainty for remaining employees. The employees, who still work for Wal-Mart may not feel not safety and concentrate in their job, because they are afraid of being fired at any time. Besides, this also resulted in negative publicity for the company. Due to the fact that this kind of mass firing happens really in Japan, which places a premium on social harmony, it takes on added negative connotation. Japanese media usually complain about Wal-Marts efforts to instill an American operating model in Japan. In addition, laying off employees can also have a negative impact on levels of customer service. For example, the company may reduce staffs working in customer service department, so if there is problems arising such as complaining from customers or changing goods, customers will have to wait longer for service. This can result in loss or dissatisfaction of customers. Last but not least, that is related to customer loyalty. In a country, which many things is built base on relationship like Japan, customers may be attracted by relationship with the companys employees. Therefore, when people they know being fired, they may not want to come back there to buy products. 2

Case study: Wal-Marts rising sun? A case Wal-Marts entry into Japan In short, this alternative has some following advantages and disadvantages: Advantages:

Saving manufacturing costs Motivating other employees by increasing salary or rewarding

Disadvantages:

Creating an uncertainty working environment for remaining employees Creating a bad image in publicity Impacting to quality of customer services Reducing customer loyalty.

Alternative 3: Reduce advertising

Reducing advertising is another good way to save costs. It also decreases the cost of goods. Because the cost of the advertisement is usually considered as overhead cost and will be included in the price of goods and is ultimately born by the customers. With a corporate like Wal-Mart, which its strategy is to supply low price commodities, spending less money on advertising will help retailer following its target. However, when we look at the main objectives of advertising, they are to increase the usage of a certain product and hence acquiring more orders, to create new customers and increasing brand recognition, to obtain feedback from customers regarding a certain product and to indicate introduction of new products or replacement of old ones, reducing advertising means that all these effectives will be decreased. Japanese customers will know less about the retailers new products because they are advertised less or their information and images appear on public media with less frequency. In short, this alternative has some following advantages and disadvantages: Advantages:

Saving overhead cost 3

Case study: Wal-Marts rising sun? A case Wal-Marts entry into Japan

Reducing the good prices

Disadvantages:

Reducing customers and brand recognition. Reducing feedback from customers for new products

Alternative 4: Wholly-own subsidiary Entry to Japan by purchasing 6.1 percent stake in Japanese retailer Seiyu, which operated more than 400 retail units across Japan, the worlds second largest economy in 2002. After a six-year gradual stock acquisition process, Seiyu became a wholly-owned subsidiary of Wal-Mart in 2008. Wholly owned subsidiary gives Wall-Mart full control of operations. It is easier for the Company to manage and control its own processes and tasks in term of marketing, merchandising, distribution, and production logistics. Wal-Mart can apply some of its policies from the US parent company in Japan or transfer some technologies to increase effectiveness here. Despite the advantages of 100 percent ownership, the Retailer also meets some difficulties. Firstly, without the help from local company, Wal-Mart may find more difficult in understanding Japanese customers needs. Japanese culture is totally different from the US, so if the retailer brings all strategies which applied successfully in the U.S, it doesnt mean that it will success in Japan. For example, Japanese consumers like buying more fresh produce than shoppers elsewhere. They are very different in tastes and preferences for retail products. They also have an affinity for luxury products as they consider a high price to be synonymous with high quality products, which is contrast with Wal-Marts core value: EDLP (Everyday Day Low Price). Another disadvantage is that the Company may bear the full costs and risks of setting up overseas operations. If the retailer continues to invest and make loss for following years, all losses will be at the parent Company in the U.S. In short, this alternative has some following advantages and disadvantages: Advantages: 4

Case study: Wal-Marts rising sun? A case Wal-Marts entry into Japan

Having full control of operations Making decision more easy and quickly

Disadvantages:

Misunderstanding customersneeds Bearing full costs and risks.

Alternative 5: Price Policy

Japanese customer seems not motivated by low price as the U.S customers. The U.S shoppers usually believe that Wal-Mart sells products as other stores but with 15% to 20% lower prices. But the Japanese shoppers are much different. They usually consider products with low price as products with low quality. Therefore, low price policy was not really effective in Japan. To address this problem, Seiyu is adding more expensive wares. For example, it is supplementing its current range of $10 jeans with a $35 option for less price-conscious customers. Similarly, Seiyu stores is offering 100% cotton dress shirts for as much as $28 -- in addition to the cotton/polyester blends costing as little as $8 it has specialized in so far. This policy can meet a wider range need of customers. However, it could take the company more cost because it required more place and decoration to display. Moreover, because of selling with other low price products, many customers may not believe in quality of the products, they might think it is nearly the same products, but with higher prices.
In short, this alternative has some following advantages and disadvantages: Advantages:

Meeting different needs of different customers

Disadvantages:

Increasing more costs Not gaining customers believe. 5

Case study: Wal-Marts rising sun? A case Wal-Marts entry into Japan 3. Solution Japan is the worlds second largest economy and has one of the highest per-capital incomes in the world, making it a highly attractive market for retailers. However, Japanese retail culture is different from other markets. Japan is a country with strong close-knit supplier webs that is difficult for foreign investors to penetrate. Misunderstanding culture is one of problems, which makes WalMart not be able to grasp the consumers and retail environment market in Japan. In order to draw customers and to be successful in this potential market, Wal-Mart need to make more research and planning before expansion begin. Seiyu would have to improve the quality of their assortment, possibly change store formats, and give themselves a more upscale look. It would also be necessary for the Retailer to change their pricing strategy and promotional policies in order to serve better to the Japanese consumers. As they consider a high price to be synonymous with high quality products and they are willing to pay premium prices for quality products, Wal-Marts low price policy is not really suitable in this market. Another aspect that makes Japanese consuming habit different from almost the rest of the world is that they tend to purchase small quantity products. Due to the fact that housing and department has a small size with high rent prices, so they need to minimize their purchases. As a result, Wal-Mart needs to change product size to match Japanese customers needs. On the other hand, because of minimum purchases, they would make several purchasing times per week. And it also means that Wal-Marts stores must be available in convenient places. Compare with Wal-Marts traditional strategy, stores are usually very big located outside the center and encourage bulk buying in order to save cost, convenience stores are more suitable with Japanese consumers. As a Japan markets characteristics of protectiveness and close-knit nature of distribution system, Japan is difficult to market in. However, it doesnt mean that there is no way to be successful there. Changing the way of doing business and adapt business model very carefully to the Japanese market is that the company need to learn here. Besides, one advantage thing for Wal-Mart is that 6

Case study: Wal-Marts rising sun? A case Wal-Marts entry into Japan they are American and the Japanese seem interested in American products. The retailer can import from their commodities from different countries for this country instead of mostly from China, which customers usually think of having low quality product. Moreover, when two these countries are having not good relations at the moment, there may a boycott for products importing from China. 4. Contingency plan/back-up plan The company has two choices to improve effectiveness and increase benefit in Japan by these two ways: a. Facing with disasters As well as other countries, Japan also being effected by recession during the 2008 period, which continues until now. This increases demand for EDLP due to decreasing consumer buying power. Customers have to buy low price product to save money for other spending. Another disaster which attacked Japan in 2011, Japan was hit by tsunami and this event occurs again. Wal-Mart could perform market survey to determine again Japans interest in value goods. If results are positive, Walmart could try once more to grab the value goods market. b. Think global, act local A nation with low to medium purchasing power would be great for EDLP as well. But with a country having quite high purchasing power as Japan, this strategy is not really affective. Wal-Mart has to adapt to premium-lover Japan, and it's not easy. Different nations will have different cultures and different consuming habits. Therefore it is necessary to apply different strategies to suit with different markets. Although, universalization approach may look simpler and less costly in the long run, but it could be fail in cases where there are countries with unique culture, especially with a very proud, traditionalist, conformist society like Japan where others have followed. For this reason, customization and localization approach is the way to adapt with this potential market. 5. Conclusion 7

Case study: Wal-Marts rising sun? A case Wal-Marts entry into Japan In conclusion, Seiyu has changed a lot under Wal-Mart management. From a big loss retailer, which need to seek the help outside, it now become the fifth largest retail store in Japan in terms of revenue under the control of Wal-Mart. To achieve this success in Japan, Wal-Mart has to study many lessons. First of all, that is studying of culture. What strategy, which is successful in the U.S or other countries, doesnt mean success in here. The differences in culture will create different consuming habits. Therefore, it is necessary for the Company make a deep research about customers before entering the market. Also, the Company has to adapt its strategy to suit with local market. The next lesson is of finding the right partner. Although, it is a good way to entry Japan market by buying stake of Seiyu local company, which helps the Wal-Mart to reduce risks when penetrating to new market, but with a large amount of debt and economic trouble, it has cost WalMart too much to reverse. So, one experience for Wal-Mart is to examine Seiyus business condition before taking over that Company. 6. References Advantages and Disadvantages of Advertising. Retrieved from http://www.pinoybisnes.com/growyour-business/advantages-and-disadvantages-of-advertising/#ixzz2CGBOmi00 Chirantan (n.d). Advantages & Disadvantages of Laying Off Employees. Retrieved from http://www.ehow.com/info_11415369_advantages-disadvantages-laying-offemployees.html#ixzz2CG2jZDPL Ian Rowley (Feb. 27, 2005). Japan isnt buying the War-Marts idea. Retrieved from http://www.businessweek.com/stories/2005-02-27/japan-isnt-buying-the-wal-mart-idea