international marketing report.docx

7/27/2019 international marketing report.docx

1/18

H & G H Mansukhani Institute of Management

ULHASNAGAR

SUB:INTERNATIONAL MARKETING

SUBMITTED TO:PROF Milind Sir

SUBMITTED BY :

DINESH MUDALIARROLL NO:39


2/18

EPRG MODEL

EPRG Model is an International Business model including three dimensions - Ethnocentric, Polycentric

andGeocentric. It has been introduced by Howard V. Perlmutter within the journal article "The Tortuous

Evolution of Multinational Enterprises" in 1969. These three dimensions allow executives to more

accurately develop their firm's general strategic profile.[1]

Overview

The EPG model is a framework for a firm to better pinpoint its strategic profile in terms of international business

strategy. It contains three elements - Ethnocentrism, Polycentrism and Geocentrism. The authors Wind, Douglas and

Perlmutter have later extended the model by a fourth dimension, "Regiocentric", creating the "EPRG Model".

The importance of the EPRG model is mainly in the firm's awareness and understanding of its specific focus. Because

a strategy based mainly on one of the three elements can mean significantly different costs or benefits to the firm, it is

necessary for a firm to carefully analyze how their firm is oriented and make appropriate decisions moving forward. In

performing an EPRG analysis, a firm may discover that they are oriented in a direction that is not beneficial to the firm

or misaligned with the firm's corporate culture and generic strategy. In this case, it would be important for a firm to re-

align its focus in order to ensure that it is correctly representing the firm's focus.Each of the four elements of the EPRG Profile is briefly highlighted in the table below, showing the main

focus for each element, as well as its correlating function, products, and geography.

Elements of the EPRG Model

Ethnocentrism

There is no international firm today whose executives will say that ethnocentrism is absent in their organization.

The word ethnocentrism derives from the Greek word "ethnos", meaning nation or people, and the English

word center or centrism.[2]

A common phrase set for ethnocentrism is tunnel vision. In this context,

ethnocentrism is the view that a particular ethnic groups system of beliefs and values is morally superior to all

others. Ethnocentrism is characterized by or based on the attitude that ones own group is superior to others.[3]

The ethnocentric attitude is found in many companies that have many nationalities and culture groups working

together. It is a natural tendency for people to act ethnocentrically because it is what they feel comfortable with.

It is based on past experiences and learned behaviors and norms.

The ethnocentric attitude is seen often when home nationals of various countries believe they are superior

to, more trustworthy and more reliable than their foreign counterparts. Ethnocentric attitudes are often

expressed in determining the managerial process at home and overseas. There is a tendency towards

ethnocentrism in relations with subsidiaries in developing countries and in industrial product divisions. Organizations that are designed with an ethnocentric focus will portray certain tendencies. These include an

organizations headquarters thats decision-making authority is relatively high. Home standards are applied to the

evaluation and control of the organization. These standards are to ensure performance and product quality.

Ethnocentric attitudes can be seen in the organizations communication process. This is evident when there is

constant advice, and counsel from the headquarters to the subsidiary. This advice usually bears the message, This

works at home; therefore it must work in your country". Organizations that portray ethnocentrism usually identify

themselves with the nationality of the owner. For example, Wal-Mart is seen as an American company because its

headquarters are located in America. The crucial critical concept of ethnocentrism in international organizations is the

current policy that recruits from the home country are hired, and trained for key executive position in the organization.The ethnocentric attitude is a centralized approach. With the centralized approach, the training originates at the

headquarters and than corporate trainers travel to the subsidiaries, and often adapt to local situations.


3/18

There are many costs that ethnocentrism can incur on an international organization. Using the centralized

approach can cause inefficient staffing problems in the organization, this is because the employed staff

will incur high financial costs to the global business as they have to pay for the transfer costs of the staff

coming from the home country to overseas.[4]

This also could bring inefficiency to the business if the new

staff is not able to fit in and be culturally compatible in their newly situated location. There is often

ineffective planning due to poor feedback from the international subsidiaries. The organization may seecapital flight, as the best men in the foreign subsidiary will seek other employment opportunities.

Ethnocentric organizations may lose their ability to build a high caliber local organization, which could lead

to fewer innovations. This in turn could cause a lack of flexibility and local responsiveness.

Costs and Benefits of Ethnocentrism

Costs Benefits

Ineffective Planning due to poor feedback Simple organization

Subsidiary valuable executive flight Greater communication and control

Fewer innovations

Inability to build a high caliber local org.

Lack of flexibility and responsiveness


4/18

Polycentrism

Polycentrism is one of the three legs in the EPG framework that identifies one of the attitudes or orientations toward

internationalization that is associated with successive stages in the evolution of international operations[5]

Polycentrism can be defined as a host country orientation; which reflects host countries goals and objectives with

respect to different management strategies and planning procedures with regard to international operations. Under a

polycentric perspective, a companys management team believes that in international business practices local

preferences and techniques are usually found most appropriate to deal with the local market conditions. In the mostextreme views of polycentrism, it is the attitude that culture of various c ountries are different, that foreigners are

difficult to understand and should be left alone as long as their work is profitable.[6]

Although there is great benefit to taking into consideration local preferences in the host country when it comes to

international business practices, a polycentric approach has its obstacles once implemented. A polycentric approach

gives rise to the problems of coordination and control. Management usually loses coordination of its international

subsidiaries usually because they are forced to operate independently of one another, and establish separate

objectives and plans which meet the host countries criteria. Marketing of the companys products are organized on a

country-by-country basis, and marketing research is conducted independently in each country.

Management is unable to have total control over the company in the host country because it is found that local

nationals have a better understanding and awareness of national market conditions, more so than home office

personnel. This is very accurate in several aspects of the products delivery including pricing, customer

service and well-being, market research, and channels of distribution. Therefore, the majority of control in

the host countries practices is lost, and the company is forced to manage its operations from the outside.

Local nationals occupy virtually all of the key positions in their respective local subsidiaries, and they

appoint and develop their own people.

There are a few other drawbacks to the polycentric approach which may restrict a multinational company from

completely realizing its full potential in the host country. The first drawback of a polycentric approach is that the

benefits of global coordination between subsidiaries such as the development of economies of scale cannot be

realized.[]

This basically restricts the company for mass production of its products, as they are forced to

manufacture its products with the local preferences being the priority of production. Secondly, the fact that

because all of the subsidiaries work independently of one another, learning across geographic regions is not

applied to one another. Therefore knowledge that could be beneficial across all regions is lost, and subsidiaries

could be worse off than if they had obtained the knowledge. Lastly is that the treating of each market as unique

may lead to the duplication of facilities. By focusing on the business practices of local preferences and

techniques which pertain to the local market conditions, the subsidiary in the host country could mimic that of

local companies and appear less appealing to local consumers.

In concluding, a polycentric approach should only be used within a company in which there is a certain amount of

comfort in allowing the host country to make all major decisions, following their own procedures and objectives. It

must be understood that there is limited control or communication between the home and host-country, and products

and distribution may vary across countries. Companies should evaluate all legs of the EPG model before

implementing a strategy, as all companies differ in international strategy among industry and region.

Costs and Benefits of Polycentrism

Costs Benefits

Waste due to duplication Intense exploitation of local markets

Localization costs of universal productsBetter sales due to better-informed localmanagement

Inefficient use of home-country experience More initiative for local productsExcessive regard for local traditions at expense of globalgrowth More host government support

Good local managers with high morale


5/18

REGIOCENTRIC ORIENTATION

Management views regions as unique.

Management seeks to develop an integrated regional strategy to market products in the particular

identified region.

Eg. A US company that focuses on the countries included in the NAFTA is a regiocentric orientation.

Similarly, a European company that focuses its attention on the Europe is regiocentric

Here, the firm researches the markets, understands customers and competition in the region and evolves

competitive strategies.

It may examine several market entry strategies but common ones are joint ventures, or subsidiary

operations in the target region.

For example, a firm targeting Europe may set up a manufacturing base in one of the European countriesto bypass EC's requirements or quota restrictions

Regiocentric staffing policy involves hiring and promoting employees based on specific regional context

where subsidiary is located. This approach is used when regional employees are needed for important

positions. However, both employees from host countries and a third country are employed. The

disadvantage of using this type of policy is that sometimes employees from home or host countries are

not unselected. Instead, employees from a third are selected to subsidiary in which they may face cultural

differences


6/18

Geocentrism

The third and last aspect of the EPG model is the geocentric portion, this notion focuses on a more world-orientated

approach to multinational management. The main difference of geocentrism compared to ethno and polycentrism is

that is does not show a bias to either home or host country preferences but rather spotlights the significance of doing

whatever it takes to better serve the organization. This is evident in the sense that upper management does not hire

or delegate responsibility to an individual because they best exemplify the host or home countries opinions. Instead,

management selects the person best suited to foster the companies goals and solve problems world wide. The

purpose of this is to build an organization in which the subsidiary is not only a good citizen of the host nation but is a

leading exporter from this nation in the international community and contributes such benefits as (1) an increasing

supply of hard currency, (2) new skills and, (3) a knowledge of advanced technology.

The sole goal of geocentrism is to globally unite both headquarters and subsidiaries. The firms subsidiaries are thus

neither satellites nor independent city states, but parts of a whole whose focus is on worldwide objectives as well as

local objectives, each part making its unique contribution with its unique competence. Furthermore, geocentrism boils

down to product differentiation, diversifying functions in the sense that different markets require dissimilar

behavior, and lastly geographic location. Out of all aspects of a business there are two that are predominantly

geocentric - research and development and marketing. As stated previously this is because different markets, regions,

and countries require distinctive ways of approaching them. For example, the standards in which the home country

operates are going to be much different from how the host country operates. What is accepted as a permissible way

of treating employees in the United States, the home country, may not be acceptable to Chinese employees, in the

host country. In addition, consumer tastes vary greatly from home country to host country, and going even further

these tastes will continue to change from country proving that for R&D to be effective it must be world-oriented.

It is the overall goal of geocentrism to form a collaborative network between headquarters and subsidiaries; this

arrangement should entail a set of universal standards that can thus be used as a guideline when attacking key

business decisions. Such decisions include the management and start-up of new plants, ideas of how to market

a product to a new consumer base, and product alterations. The most effective way to enforce geocentrism is

with a formal reward system that encourages both subsidiary and headquarters managers to work for global

goals rather than just defending home country values. This ideology is a great example of how todays business

must manage both global and local issues in order to succeed in the end.

While there are many obstacles that will hinder a company's ability to become geocentric, there are also a

handful of forces which will drive them towards this. For instance, there is the loss of national sovereignty when

one nation is dominated by another - this can lead to a loss in economic and political nationalism. There is also

the feeling from host countries that receive disproportionate reimbursement from international profits that only

fuels the lack of trust toward big corporations felt by political leaders of host countries. On the other hand, there

are also forces that push an organization to the geocentric notion of managing a multinational corporation(MNC). The first and most obvious of these is competition, if one company is to enter a new country or market it

forces rivals to do the same in order to maintain pace. Secondly, there is a large amount of customers available

to MNCs internationally that require a geocentric approach in order to effectively targeted. A third force causing

this movement is the abundance of growing world markets, occurring in areas such as income earning age

population, rising GDPs, and escalating disposable income in areas such as China and Korea.

With that said geocentrism is an ideology that must be accepted by any corporation operating globally in

order for any sort of success and long term stability to attained. However, there are certain aspects of the

business life in which ethnocentrism and polycentrism are more adequate models to follow, but functional

smoothness and success in both home and host countries is dependent upon upper managements ability

to select individuals who are world orientated as opposed to home or host country centered.


7/18

Costs and Benefits of Geocentrism

Costs Benefits

High communication and travel costs Integrated global outlook

Educational costs at all levels More powerful total company throughout

Time spent in consensus decision-making Better quality of products and services

International headquarters bureaucracy Worldwide utilization of best resources

Too wide distribution of power Improved local country management

Personnel problems, especially those of international executive reentry Greater commitment to global objectives

Higher global profits

PROS OF EPRG MODELThe orientation of the dominant senior management group influences and shapes diverse aspects of amultinational enterprise, including strategy, structural design, pricing, resource allocation, andadministrative processes.The study made managers aware that culture was an important aspect to consider in international

business affairs.It started a whole series of studies on culture in the business environment.The model provides insight in how an international organization evolves in time and what organizationaland staffing challenges lay ahead. The EPRG mix can be used to determine how far an organization hasinternationalized.

CONS OF EPRG MODELThe model is organisation centred disallowing environmental influences. Its international orientation is measured solely on internal aspects.In the real world these orientations never appear in a pure form. In any organisation some degree ofethnocentricity, polycentricity or geocentricity are present.Perlmutters organisational development process does not always hold. In certain circumstances,irrespective of the companys size and internationalisation experience, a country-centred strategy, similarto Perlmutters polycentric view, may be the best possible orientation and not a geocentric orientation


8/18

5C Analysis

While a situation analysis is often referred to as the "3C analysis", the extension to the 5c analysis has allowed

businesses to gain more information on the internal, macro-environmental and micro-environmental factors within

the environment. The 5C analysis is considered the most useful and common way to analyze the market

environment, because of the extensive information it provides.[5]

COMPANY

The company analysis involves evaluation of the company's objectives, strategy, and capabilities. These

indicate to an organization the strength of the business model, whether there are areas for improvement,

and how well an organization fits the external environment.

Goals & Objectives: An analysis on the mission of the business, the industry of the business and the

stated goals required to achieve the mission.

Position: An analysis on the Marketing strategy and the Marketing mix.

Performance: An analysis on how effectively the business is achieving their stated mission and goals.

Product line: An analysis on the products manufactured by the business and how successful it is in the

market.
http://en.wikipedia.org/wiki/Situation_analysis#cite_note-sitan-5http://en.wikipedia.org/wiki/Situation_analysis#cite_note-sitan-5http://en.wikipedia.org/wiki/Situation_analysis#cite_note-sitan-5http://en.wikipedia.org/wiki/Situation_analysis#cite_note-sitan-5


9/18

CONSTITUTION

constitution are useful for businesses as they allow for an increase in the creation of ideas, as well as an

increase in the likelihood of gaining more business opportunities. The following type of collaborators are:

Agencies: Agencies are the middlemen of the business world. When businesses need a specific worker

who specializes in the trade, they go to a recruitment agency.

Suppliers: Suppliers provide raw materials that are required to build products. There are 7 different types

of Suppliers: Manufacturers, wholesalers, merchants, franchisors, importers and exporters, independent

crafts people and drop shippers. Each category of suppliers can bring a different skill and experience to

the company.

Distributors: Distributors are important as they are the 'holding areas for inventory'. Distributors can help

manage manufacturer relationships as well as handle vendor relationships.

Partnerships: Business partners would share assets and liabilities, allowing for a new source of capital and

skills.

Businesses must be able to identify whether the collaborator has the capabilities needed to help run the

business as well as an analysis on the level of commitment needed for a collaborator-business

relationship.

Competition analysis

Competition deals with the competitive forces within the new market. The firm entering the new market

needs to consider issues such as competitive rivalry, threat of substitutes, bargaining power of suppliers

and buyers as well as threat of new entry. As the competition also relates to the market and things such as

market growth and market potential, this thesis will include general market characteristics under thissection as well


10/18

CUSTOMERS

Customer analysis can be vast and complicated. Some of the important areas that a company analyzes

includes

Demographics

Advertising most suitable for the demographic

Market size and potential growth

Customer wants and needs

Motivation to buy the product

Distribution channels (online, retail, wholesale, etc.)

Quantity and frequency of purchase

Income level of customer

CULTURE

To fully understand the business climate and environment, many factors that can affect the business must

be researched and understood. An analysis on the climate is also known as the PEST analysis. The types

of climate/environment firms have to analyse are:

Political and regulatory environment: An Analysis of how active the government regulates the marketwith their policies and how it would affect the production, distribution and sale of the goods and services.

Economic Environment: An Analysis of trends regarding macroeconomics, such as exchange rates and

inflation rate, can prove to influence businesses.

Social/cultural environment: Interpreting the trends of society, which includes the study of demographics,

education, culture etc.

Technological analysis: An analysis of technology helps improve on old routines and suggest new

methods for being cost efficient. To stay competitive and gain advantage over competitors, businesses

must sufficiently understand technological advances.


11/18

Case study

Summary

About Wal-Mart

Wal-Mart is a retailer of consumer goods founded in 1962 by Sam Walton. The company obtains profitsthrough volume, with a low-cost strategy. Its Every Day Low Prices business plan is supported by

aggressive pricing policies, a state-of-the-art retail and supply chain distribution system, advanced

inventory management systems, and little promotion and advertising efforts. The large success of the

company led to global expansion that began in the early 1990s.

Global Expansion:

Wal-Mart, the second largest retailer in the world, entered Japan in 2002.

It used its usual foreign strategy of forming a joint-venture (used to help with economic and political

challenges). The company enters foreign markets by purchasing large stakes in similar retailers and takes

gradual control of ownership by increasing investment through time. Historically these acquisitions are

gradual, and have been met with both success and failure.

The retailing giant has operations in 28 countries under 60 different banners. Examples of failed and

abandoned markets include South Korea, Germany and Indonesia. Expansions that have proven largely

profitable are Mexico and Canada. A struggling market similar to that of Japan is the United Kingdom.

Judging from these varying country performances, one can see that its formula for success has not yet

been perfected.

Summary of Strategy & Performance: Wal-Mart in Japan

1999-

Talks begin with struggling Japanese retailer Seiyu. Seiyu had 400 retail units across Japan

2002-Wal-Mart purchases 6.1% stake in Seiyu, beginning expansion

2003-

Seiyu begins reorganizing structure; implements point-of-sale and SMART inventory tracking systems

across 53 stores. Store efficiencies increase by capturing consumer trends

Wal-Mart acquires 34% stake in company, becoming the Seiyus biggest shareholder

Net income fell to lowest level between 2002-2007, with a loss of $772 million

9 new locations open


12/18

2004-

Wal-Mart opens its first pilot superstore, Japanese are not familiar with the supercenter concept

The company implements its supply-chain and distribution management system, Retail Link, in half of its

locations

Company lays off 1500 (25%) of headquarters staff, resulting in bad PR

Reduces advertisingSeiyu manages to cut costs by 6.1%

Reports annual loss of $66 million

2005-

Seiyu announces loss of $118 million

CEO Masao Kiuchi takes blame and resigns

Wal-Mart increases ownership to 42%

2006-

Wal-Mart built and opened U.S.-style distribution center

Some individual store sales turned positive

Company reports loss of $151 million

Wal-Mart ends year with 54% stake in Seiyu

2007-

Wal-Mart implements SMART system in more than 75% of its stores to help better meet customer needs,

enhance product selection, hopes to increase sales

Seiyu reports loss of $469 million

2008-

Wal-Mart completely acquires Seiyu for $875 million, taking 100% ownership of the company

Makes Seiyu a subsidiary of the company

Introduces new activities including merchandising, distribution and logistics

Closes 20 outlets and cut 6 percent of its workforce

Business Challenges and Suggestions:

So, where did Wal-Mart go wrong? The companys global marketing strategy had many flaws. Read

below to find an explanation of these challenges and what could have been done to prevent or controlthem.

Cultural misunderstanding:

Wal-Mart failed to grasp the consumer and retail environment in Japan. With a population of 127 million,

the highest per capita income and the second largest economy in the world, Japan is a very attractive

market for retailers. The opportunity exists, but there is much more research and planning that needed to

be done before expansion began. Instead of adapting business operations to the Japanese culture, the

company essentially assumed the Japanese would readily adapt to Wal-Marts. This was not the case. For


13/18

example, in Japan there is a much larger need for local store customization. Consumer buyer behavior is

much different than in the United States, with purchasing patterns and product selection varying greatly

between regions. They have a tendency to buy smaller quantities in regular intervals rather than the more

American idea of stocking up. Similarly, the concept of large retail stores is foreign. Retailers with the

highest growth rate are small specialty stores; quite the opposite of Wal-Mart. The culture tends to buy

more fresh produce than pre-packaged goods as well (something Wal-Mart does not usually specialize

in). Lastly, the Japanese view high price as equaling high quality. This mentality causes them to purchase40% of the worlds luxury goods annually. Packaging and appearance of goods play a huge role in their

purchasing decisions. When looking at Wal-Marts product selection, it is obvious they do not usually

cater to luxury-brand customers. All of these cultural misunderstandings lead Wal-Mart away from

success in Japan. Perhaps more research into their cultural values and patterns could have helped avoid

some of these mishaps.

Inability to carry out a low cost strategy

Given the above facts, it is obvious that the idea of Every Day Low Prices does not appeal to the

Japanese market in the same way it does in the American, Mexican and Canadian markets. This is a very

different culture and population to cater to. Wal-Marts low cost marketing strategy may not be as

effective globally as it is domestically. They earn their profits through high volume sales over

differentiation, and this approach is just not as successful in Japan.

Supply chain inefficiencies

In Japan there are strong and close-knit supplier webs that provide retailers with their goods. This country

puts a higher value on close, local relationships, making it very difficult for foreign firms to enter the

industry. With so many changes in products due to local store specifications, it forces firms to deal with

many different suppliers. This is not favorable to large retailers, as they dont have the time or national

presence to make the necessary relationships to do business. Wal-Mart is not used to this high level of

supplier power. Their value usually comes from cutting costs with suppliers enough to pass onto their

customers while using synergy to increase efficiencies. Difficulties managing their supply chain are

another substantial reason Wal-Mart is struggling in Japan.

Pressure from competition:

The types of competition in Japan include both domestic and international players. Its b iggest Japanese

competitors are 7-Eleven Japan Co. Ltd., Aeon Co. Ltd., and Ito-Yokado Co. Ltd. As of 2008, all of these

companies drastically outperformed Seiyu Ltd. (Wal-Mart). Although all of these companies havedifferent strategies, much of their success can be credited to their experience in understanding how their

country buyers and sellers interact. Two main international competitors are Carrefour from France and

Tesco from the United Kingdom. These firms had similar challenges to Wal-Mart with their international

expansions, but each faced them differently. While Carrefour had complications so complex that it exited

the market in 2004, Tesco was able to gradually expand and prosper. Tesco made large investments in

market research that allowed them to build stores that better met the Japanese consumers needs. Their

cautious expansion and well thought out plans have helped them succeed in the Japanese retail industry. It

is imperative for Seiyu and Wal-Mart to recognize their competitions advantages and formulate better

ways to respond.


14/18

Seiyus pre-Wal-Mart conditions:

Lastly, it is necessary to examine Seiyus business situation before Wal-Mart took over the company.

Formed in 1956, Seiyu was successful until the 1990s when Japan experienced an economic recession.

During this time the company acquired a large amount of debt that totaled $7.46 billion at the start of the

millennium. Although the company was in trouble, they did not receive assistance from its larger owner,

Saison Group, because they too were experiencing the financial crisis. This situation is important toconsider when evaluating Wal-Marts performance. Although it was predicted that Wal-Mart could save

the Japanese retailer, their debt and economic troubles may have been too much to reverse. Looking back,

Seiyu may not have been the best company for Wal-Mart to begin their expansion with.

Summary/What next?: As of 2008, Wal-Mart had invested over $3 billion dollars in its expansion into

Japan. The question is, will it be worth it in the long run? They have made many mistakes in the past, but

as of 2011, Wal-Mart is still operating in Japan under the same brand name, Seiyu. According to their

most recent annual financial report, they claim profits are growing as the Japanese become more

favorable towards the Every Day Low Price strategy and as their operational efficiencies increase.

Despite these claims, the firm closed 23 additional stores by the end of their 2009 fiscal year, and net

investment now totals $5.7 billion. I believe the root cause Seiyu and Wal-Marts failure can be traced

back to their initial global marketing strategy. A better understanding of Japans culture and how it affects

supplier-relations and the competitive landscape could have prevented many of the companies problems.

Will their low-cost strategy ever actually turn a profit for the company? My guess is not any time soon,

but only time will tell.

1.Analyze retail industry in japan Discuss the favourable and unfavourable

factors that influence retail sector in japan?

Japans retail market is the worlds second largest, worth some US$1,124 billion (135 trillion yen) in

2007. Benefiting from a base of sophisticated consumers with high levels of disposable income, per

capita retail expenditures have reached US$8,800.

Japan is a mature market, yet it hums with the dynamic development of new businesses, urban

renewal, and local city development, presenting a broad range of opportunities for market entry.

Japans Retail Sector Attracts throughout Asia

Japans retail market attracts consumers from across Asia. The number of tourists traveling to Japan

from other parts of Asia continues to grow, with roughly 35% citing shopping as one of their

reasons for visiting. Moreover, womens fashion magazines from Japan are especially popular in

China, Taiwan, Hong Kong and South Korea, highlighting the power of Japanese retail to resonate

throughout Asia. For foreign companies, Japans market holds significant opportunities for advancing

into other Asian markets.


15/18

Japanese tends to prefer quality over low prices, which constrasts with Walmart core value: EDLP

(Every Day Low Price).

When a nation has a very strong purchasing power, such as Japan, why settle for cheap stuffs when

you can buy high quality expensive products and still have money to spare?

Favourable and Unfavourable factors of Japan retail sector

Japan is a small country with limited spaces, which has several implications for Walmart as below:

Small housings and apartment sizes, with high rent prices means that Japanese would need to

minimize their purchases.

Lack of storage room to store purchases.

A typical apartment in Japan would be 1LDK (1 room apartment with Living, Dining, and Kitchen

area). Room size in Japan is measured by Jo (1 Jo = 1 tatami/Japanese mat = .88m x 1.76m). 1 LDK

apartment would be about 18 Jo, which measures to only 27,55 sqm.

Several small purchases.

Minimize purchases, they would make their purchases several times a week, in small quantities. This

means that stores would have to be readily available within reasonable distance, and bulk purchasing

is discouraged. Compared to Walmart usual practice of centralized, big stores, with bulk purchasing

to save costs, a neighborhood convenience store would be more suitable for the Japanese people.

High operating costs, especially because of the prices of rent and buildings in general.

Average commercial land prices in Japan is 156,857 Yen (USD 2,017)/sqm, with average commercial

land price in Tokyo reaching 1,551,400 Yen (USD 19,956)/sqm, followed by Osaka with average

commercial land price of 493,700 Yen (USD 6,360)/sqm.

Inability to apply original supply chain model

Lots of stores, lots of supplies to be delivered, but no warehouse space, or overtly expensive

warehouse space, since space is a premium in Japan. Walmarts supply chain management that is oneof the strengths of Walmart in US, and based on US model, can't be applied here. That's why Toyota

invented JIT: to avoid the constraint of using warehouses, and hence, adding more costs to the product

line

High operating costs, especially because of the prices of rent and buildings in general.

Average commercial land prices in Japan is 156,857 Yen (USD 2,017)/sqm, with average commercial

land price in Tokyo reaching 1,551,400 Yen (USD 19,956)/sqm, followed by Osaka with average

commercial land price of 493,700 Yen (USD 6,360)/sqm.


16/18

Inability to apply original supply chain model

Lots of stores, lots of supplies to be delivered, but no warehouse space, or overtly expensive

warehouse space, since space is a premium in Japan. Walmarts supply chain management that is one

of the strengths of Walmart in US, and based on US model, can't be applied here. That's why Toyota

invented JIT: to avoid the constraint of using warehouses, and hence, adding more costs to the product

line

2.The Entry Strategies Plays An Important Role In International Expansion Of A

Company

What type of entry strategy did walmart pursue in japan?

Discuss pros and cons of the strategy

WalMart, having seen Carrefours difficulties, adopted a more cautious approach, seeking a Japanese

partner with knowledge of local consumer tastes. Following six months of negotiations, it bought a 6

per cent stake in Seiyu, Japans fourth largest supermarket group, in 2002. This partnership seemed to

work smoothly, and it raised its stake to 34 percent of Seiyu six months later. WalMart allowed the J

apanese management to continue running the business and retained the Seiyu name on the stores. This

strategy is similar to its market entry strategy in the UK, where it acquired Asda supermarkets.

Companies like Wal-mart, adopt international strategy for global expansion because they have core

competences which they can capitalise upon especially if its difficult for their rivals to match them.

Companies with International strategy have important part of their value chain such as decision

making, expertise, new products and international operations being controlled or decided from their

headquarters. However such centralised decision making can often impede upon the abilities of the

subsidiaries to respond to local demands

Wal-mart has a cost efficient operating system with an expense structure that is among the lowest in

the industry Its price of food was estimated to be 20% lower than its competitors in the United States

Wal-mart is therefore trying to replicate this successful American strategy and core competence of

Everyday Low Price (EDLP) in the Japanese international market. Though this strategy has been

success in some of its international markets such as Mexico and China, the results in Germany and

Korea were so poor that Wal-mart withdrew from those countries in 2006. Once again the success ofthis strategy is still questionable in Japan. Japanese consumers associate low price with low quality as

they are willing to pay high price for high quality products

The perception of customers towards low price signifying low quality is particularly high in its

clothing segment . This low price strategy was adopted by Wal-Mart in its entry into Japan in 2002,

especially because it was at a time when the country was just emerging from a prolonged recession

and consumer income was low. In order to erase this image of Low Price signifying Low Quality

from the minds of their customers, Wal-Mart has introduced, more expensive products for the

customer segment that prefers high cost while still maintaining some low cost variants. For example,


17/18

it has jeans for $10 and $ 35 option as well this however may further confuse its customers who may

not understand the basis for such price disparity.

Japan is a country with a high context society and collectivistic way of life They have strong ties to

families and groups and great emphasis for quality and prestige As a result of these strong social ties,

Wal-Marts sacking of 25% of Seiyus work force including 1500 managers and employees in 2004,

was wrongly perceived by the Japanese people. Wal-mart opens its stores for 24 hours a day, this isseen as stressful by the employees and generally seen as an infiltration of the American culture into

Japan. Its introduction of American, Canadian and British managers who act on headquarters

decisions rather than employing Japanese managers who understand the market better further

portrayed them in a negative light to both the employees and the general public. This consequently led

to the loss of some of its customers

Another core competence which Wal-mart introduced into Japan is its technology-focused inventory

replenishment system which is linked to their suppliers. It helps them monitor and manage their

inventories. However, because the Japanese people prefer personal interaction when doing business ,

the implementation of this Information technology strategy has not been easy, especially as Japan has

several layers of distribution network which are closely networked and difficult to penetrate. It thus

makes high volume discounting difficult and merchandising more expensive Wal-Mart is however

trying to eliminate the middle-man in order to successfully implement its low price strategy

Wal-marts response to local tastes, preferences and general way of life isperceived as low in its

international strategy as It tends to implement its competences into international markets with little

considerations to what the local demands, preferences, expectations are and this has led to its struggle

to survive in Japan

3.Analyze the strategies adopted by Wal-Mart in Japan through its joint venture

with seiyu . Do you think the company is going to be achieve rapid growth in

japenese market? Why?

Wal-Mart initially made a failed entry into Japan in the mid 1990s when it entered the market

through selling its products in local supermarkets, however sales were disappointing . The initial

failure could be associated to slow market drive by the local super markets as Wal-mart had little or

no control over them. This can be seen as a major disadvantage of indirect exporting . However, in

2002 Wal-mart made a second attempt into Japan Japan is one of the wealthiest and developed

economies in the world. It has the second largest consumer market . Wal-marts entry into Japan was

through partnership with Seiyu Ltd which is Japans fifth largest hypermarket and was in financial

distress at that time It was a deal which was done in phases as agreed by both parties. Wal-mart was

to initially acquire 6.1% of Seiyu shares and gradually increase its stake by acquiring up to 67% of

Seiyu in 2007

. Sumitomo Corp a leading trading company in Japan also had a 15.6% stake of Seiyu . In 2005, Wal-


18/18

mart increased its acquisition stake making Seiyu a Wal-mart subsidiary and increasing Wal-marts

control over Seiyu. In 2007, Wal-marts stake was again increased to 95.1% . This partnership deal

was meant to help Wal-mart minimise its risk of internationalising in Japan where there is strong

domestic competition, price wars and strong suppliers and also help its entry and expansion in the

market

Yes ,company can achieve rapid growth in Japanese market if it rethinks over its strategies and adoptsfollowing measures

Wal-Mart is very successful in its domestic market and also some foreign markets such as China and

Mexico where it had to adjust its strategy in order to respond better to local pressures. It is therefore

recommended that Wal-mart should further develop its strategy in Japan and respond better to the

countrys local demands and preferences through the opening of convenience stores in order to

capture that market segment and offering more fresh local products to meet the local demand. Wal-

mart should also employ Japanese managers who understand the market better. These measures will

help Wal-mart to succeed better in Japan where the pressure for low price by customers is not

emphasised rather high quality is preferred. Wal-mart can still maintain its international strategy with

a little more responsiveness to local demand as there is no one best strategy to adopt. This move will

save Wal-mart from withdrawing from the market where it has already invested $1 billion USD. Wal-

marts low sales value from international operations in comparison with Tesco reveals that the retail

market is still a viable industry for Wal-mart to exploit

international marketing report.docx

Documents