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

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

Has 5 Division

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

Among the 3 largest and wealthiest markets worldwide Japan is the second most technologically powerful economy Culture influence by Confucianism and western culture Strong Loyalty

Strong Cultural Values

Japan In Brief

Hofstede Cultural dimensions

PDI
54

Country
Japan

IDV
46

MAS
95

UAI
92

LTO
80

According to Hofstede, Japans culture has: low power distance High collectivism High masculinity High uncertainty avoidance Long-term oriented

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

These are reflected in Japans Marketing practices and consumer behavior

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 Market in Japan Preference to local products High Quality Product Competitors and Barriers Wal-Mart Political barriers Large number of retail stores present in Japan Porters 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

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

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

Large toy retailers make much less sales than small specialty stores

Wholesalers deal almost exclusively in Japanesemade products

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

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

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

Overcome cultural barriers ( to make hamburgers part of the Japanese diet ) Joint alliance with Toys R Us in 1986 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 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 Political factors from the Japanese government

Competitive advantage of the store- 18,000 items

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 Donalds 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/

(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. Cultures 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.

Question Time