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

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

Has 5 Division 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,

Toy “R” Us background

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

Strong Cultural Values Culture influence by Confucianism and western culture Strong Loyalty

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

Japan In Brief

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

Porter’s 5 forces need to be considered

Impact on Management practices

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 Japanese-made 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

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

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

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 workwell 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 Wal-Mart

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-world-factbook/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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