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

Has 5 Division

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

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

Strong Cultural Values

Culture influence by Confucianism and western culture

Strong Loyalty

Japan In Brief

Hofstede Cultural dimensions

Country

PDI

IDV

MAS

UAI

LTO

Japan

54

46

95

92

80

According to Hofstede, Japans

culture has:
low power distance
High collectivism
High masculinity
High uncertainty avoidance
Long-term oriented

These are reflected in Japans

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

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

Wholesalers deal almost exclusively in Japanesemade products

Large toy retailers make much less sales than small specialty
stores

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