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
 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,
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, Japan’s

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

Source: Geert Hofstede 2009

These are reflected in Japan’s
Marketing practices and consumer
behavior
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

 Porter’s 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 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
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 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.
Question Time