Wal-Mart's Japan Strategy

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In-Depth Integrative Case: Wal-Mart’s Japan Strategy

1. Question:Do you believe Wal-Mart can be successful by circumventing the current Japanese distribution system?

The Japanese distribution system has two distinct characteristics: too many very small retailers and multiple layers of wholesalers. Japanese consumers prefer to buy fresh, high quality food and have the tendency to purchase goods in small amounts and at frequent intervals. Since real estate is very expensive in Japan, people live in very small apartments and they are not used to doing big shopping, because there is not much space to store things. The majority of small-sized retail stores are run as family businesses, and there are preferential tax treatments granted to these retail stores. In addition, there are regulations placed on large-scale retail stores. Japan’s current distribution system is a huge barrier to Wal-Mart’s traditional way of doing business. Wal-Mart’s direct-supplier system could not be more different in its design, its business philosophy and its operations from Japan’s multi-layered system. There are two options, either Japan’s system will change, or Wal-Mart will have to adapt. In order to be successful, Wal-Mart will have to create an unassailable competitive advantage in the Japanese market, Wal-Mart will have to create a logistics and distribution system that is lower cost and more efficient than anything currently in use in Japan. Wal-Mart’s distribution strategy is likely to follow a multi-stage, multi-method approach. These different methods may be approached as parallel strategies. While the long term vision will be to change the nature of the supply chain process and fully implement their Retail-Link system, it will take time to make this transition. Initially, Wal-Mart will have to work through the multi-layered Japanese distribution system, treating wholesalers much as they would suppliers. Wal-Mart will have to work with the larger wholesalers to upgrade their technology capabilities. Several of the larger Japanese wholesalers are working hard to develop added value services for their retail clients. To be viable long term, they will have to prove that they are both more efficient and more reliable for retailers to work with than going direct to suppliers. The second step in this process is likely to involve Wal-Mart acquiring a Japanese wholesaler. Finally, Wal-Mart will have to begin developing Retail-Link with their largest suppliers, particularly the ones they have relationship with either in Europe (UK) or the U.S. This will be a slow process and may take several years before it is initiated as the software for the Retail Link will first have to be adapted to the Japanese language.

2. Question:Do you agree with Wal-Mart’s entry strategy? What are some of the inherent risks? Do you think that a faster market entry would be more effective?

I believe Wal-Mart’s “bit-by-bit” approach is the right way to go in Japan. Concerned over past market-entry failures in Mexico, Germany and South Korea, Wal-Mart deliberated for over four years before purchasing a minority stake (34%) in Seiyu in 2002. In fall 2005, Wal-Mart increased its stake to 54% and made Seiyu a subsidiary. Wal-Mart believes that getting to market faster doesn’t necessarily equate to being better. The goal is to install Retail Link, a “Just In Time (JIT)” inventory replenishment and supply chain management system shared between retailer and supplier that effectively eliminates the wholesaler and speeds up payables and receivables collections. The acquisition of Seiyu offers Wal-Mart leverage with local manufacturers and may help to negotiate direct deals. However, there are risks associated with this slow entry strategy. The biggest threat to Wal-Mart in Japan will be from domestic competition like AEON and Ito-Yokado. Local rival AEON, Japan’s No. 2 retailer, expects to have 100 Wal-Mart style supercenters in suburban areas by the end of 2007,...
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