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.
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-Mart’s. This was not the case. For 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 purchase 40% of the world’s luxury goods annually. Packaging and appearance of goods play a hugeb 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. And last but not least, In Japan, consumers often equate bad quality with low price. Changing consumer perceptions is not easy or cheap. In addition, Japanese customers demand a quick entry and exit from the stores which makes cutting costs by eliminating staffs from the retail process unadvisable. So, how could Walmart face this kind of Socio-cultural Differences and find a way out will be an critical issue.
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-Mart’s 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 don’t 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. It’s biggest 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 have different 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 consumer’s needs. Their cautious expansion and well thought out plans have helped them succeed in the Japanese retail industry. It is absolutely imperative for Seiyu and Wal-Mart to recognize their competition’s advantages and formulate better ways to respond.
Seiyu’s pre-Wal-Mart conditions: Lastly, it is necessary to examine Seiyu’s business situation before Wal-Mart took over the company. Formed in 1956, Seiyu was successful until the 1990′s 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 to consider when evaluating Wal-Mart’s 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: 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-Mart’s failure can be traced back to their initial global marketing strategy. A better understanding of Japan’s culture and how it affects supplier-relations and the competitive landscape could have prevented many of the companies problems. Reference: