Can Western Companies Succeed on Asian Markets?
After eight years and more than £250 million, UK supermarket giant admitted that it failed to crack the world's third-biggest grocery market. Tesco is not the first foreign retailer to leave Japan with its tail between its legs. Boots, the Chemists, and France's Carrefour have also admitted defeat there.The Difficulties of the Japanese Market
Any international market is difficult when there is a limited understanding of the culture and local consumer behaviour.
Asian markets are very attractive due to the level of economic, industrial and social development but they are also quite difficult to penetrate.
Some experts believe that retails fail in international market because they are unable to understand local consumer’s preferences. Business development and internationalization involves many other factors. For western businesses that want to succeed in Japan, it is essential to adjust products and services to the Japanese business environment.
The main factors that entrepreneurs should analyze before any international adventures are:
• Local Culture and Values. Japanese population is culturally homogeneous. They are also very proud of their culture and achievements. A foreign company that attempt to conquer their market should recognise their nation’s superiority and do not try to sell their foreign products as ‘superior’. In many cases, South Asian view foreign companies as threats that promote consume of foreign products in detriment of the local culture. In the specific case of Japan, the country does not share the same set of values as westerners.
• Consumer Behaviour. In some countries, consumers are used to do the weekly shopping in big shops or supermarkets located in suburbia while in others countries, consumers prefer to buy in small local shops anytime they need the product. Many western entrepreneurs adapt consumer behaviour patterns of their countries to completely different sceneries instead of adapting their strategy to the local requirements.
• Regulation. The regulation that affect agricultural products, for instance, vary depending on the country. In Japan, all products affecting the consumers' health have to go through the preliminary request of a license to be launched on the market. The procedure of adapting new products to the Japanese standards is made difficult because of Japan's specific standards, often different from the internationally admitted standards.
• Marketing Strategies. It is important to analyse local consumers’ preferences in order to get the adequate marketing strategy. Many western companies adapt their promotion strategy to the local market instead of learn their local competitors that know better how to approach local consumers. In some cultures, a good price is a good reason to buy on a particular shop. In others, such as Japan, price is not the incentive but quality.
• Negotiation Style. Entrepreneurs should also adapt their negotiation with stakeholders to the specific business environment. In Japan, consensus is their way of arriving at decisions and Japanese chief executive officers act as consensus builders. For to the Japanese cultural keeping “harmony” between workers and people in general is essential. That is why western style aggressive approach is destined to fail.
• Location. In countries such as China, transportation and delivery of goods can be challenging due to the great distance between the cities. Location also has to do with where the shops are situated. In many countries, people do their shopping in big commercial centres. In others, consumers prefer small, accessible shops.
Can Western Companies Succeed in Japan?
Jeans-wear and Coca Cola were well accepted by Japanese people and they are now part of the Japanese people's life style. During the post war period, Japanese people were attracted to the American life style therefore buying jeans and Coke they were buying a style of life. Something similar happens at present with the Vuitton bags that are immensely popular among Japanese ladies. In general, Japanese consumers seek brands that suit their own values and sense of style.
Wal-mart entered the Japanese market seven years ago with the purchase of a 6% stake in the 371-store Seiyu chain. Despite continued losses, Walmart gradually raised its stake, making Seiyu a wholly-owned subsidiary in June 2008. After closing 20 stores, and cutting 29% of their corporate staff, the company is still fighting to get a place in the market. To some extent, the current recession has benefit them. As Tokyo-based business consultant Ken Hasebe explains: "Japanese consumers have finally accepted that you can buy quality merchandise for a lower price."
Wal-Mart knows one thing or two about failure in international markets. The world’s largest retailer, failed to capture the hearts of South Korean consumers, ultimately withdrawing in 2006 after eight years, only a couple of months after pulling out from Germany. In response, Michael T. Duke, the former international chief and current CEO, gave local managers more autonomy while instituting more stringent financial goals for each region and there are some positive signs in Japan; Seiyu has been posting positive comparable store sales since last November.
What Lessons Can Be Learned?
Over the past 50 years, 21 percent of European grocery retailers pursuing internationalization experienced divestiture, major organizational restructuring, or closure.
Failure is mainly the consequence of insufficient adaptation to cultural and consumer-behavioural related local habits but there are other factors involved such as local legislation, geographical conditions and general cultural values. Retailers that adapt their operations to the new environment will perform better than those who solely use a standardized approach.
Different areas require different approaches to internationalization. While technology-based products, including electronic goods or cars, are similar across the globe, foodstuffs or cosmetics seem to be intimately connected to the audience’s cultural roots. Some business concepts may be recognized globally and are easily transferable, while others may be suited only to particular countries or regions.
Retailers need to understand their own core competencies and values, as well as whether those values will resonate with consumers in various cultures. It is critical to realize an exhaustive market research prior to entry into a foreign country. Besides all the business-marketing strategies, it is necessary to understand the cultural values of the country.
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