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Walmart in Japan Albert Winadi Eric Setiawan Junita Astariyani Meliana Lumban Raja Sonny Ongkowardojo 28 September 2012 UPH

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Walmart is well known as the retail giant with global outreach, but sometimes failures do happen. This presentation attempts to analyze Walmart's failure in Japan and possible opportunities.


IT Governance

Walmart in JapanAlbert WinadiEric SetiawanJunita AstariyaniMeliana Lumban RajaSonny Ongkowardojo28 September 2012UPHFor information on applying this template onto existing presentations, refer to the notes on slide 2 of this presentation.The Input area of the Beam can be customized to reflect the content of thepresentation. The Input area is an AutoShape with a picture fill. To change this, ensure you have the image you wish to use (ideally a .jpg or a .png file) in an accessible folder. The image should have a ratio of 1:1 to ensure it does not appear distorted.Acceptable images for importing into the Input area of the Beam are the three approved graphics (lines), and black and white photography or illustrations which follow the principles laid out on The Branding Zone. Color images should never be imported into this area.To create a thank you slide with a picture in the Input area of the Beam, duplicate this master slide and create a new master slide. If using the graphic on the title slide the same should be used on the thank you slide. If using a picture in the Input area of the Beam in the title slide, the same or different but related picture can be used on the thank you slide. Customize the Input area of the Beam as described below. Click on the View tab from the menu bar and select Master>Slide MasterRight-click on the Input graphic and select Format AutoShapeFrom the Fill menu, under the Color and Lines tab, click on the drop-down arrow next to Color and select the Fill Effects menuFrom the Picture tab, click on Select Picture. Navigate to the folder containing the image you wish to insert in the Input area. Highlight the image and tick the Lock picture aspect ratio box. Click on OK.You can now preview the image before continuing. If you are happy with how it looks, click Ok to continue. Otherwise, repeat the process until you are happy with your selected imageTo exit from Master View, click on View>Normal. The change you made to the Input graphic should now be visible on the title slideMay 22, 2008Presentation titlePage #About WalmartAmerican multinational retailer corporationLarge discount department stores and warehouse storesWorld's third largest public corporation (Fortune Global 500, 2012)Largest retailer in the United States, and in the world8,500 stores in 15 countries, under 55 different names (UK - Asda, Japan - Seiyu, India - Best Price)WOS in Argentina, Brazil, Canada

Mixed results in investments outside North America:UK, South America, China are successfulGermany, South Korea were unsuccessful2

Walmart strategy3Offer broad assortment with even lower pricesOffer more product variety, achieve lower price by reducing expense, increase productivity and leverage technology to improve supply chain efficiency.Meet local needs while leverage global resourcesAlways align service to fastest-growing consumer demand in market, focusing on EDLP, targeting middle-income customers looking for quality-value combination.Winning in Global eCommerceBold competitive advantage by real-time communication between stores, distribution centres and the home office. Currently offers social, mobile and global platforms, such as iPad app, facebook gift finder.Motto:Every Day Low Price(EDLP)Walmart approach in Japan4

Walmart entered Japan in 2002.

Usual foreign strategy: 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.

Multinational operationsThe 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.

Entry to JapanThe third major strategic step in Walmarts early 2000s global expansion was entering the Japanese market. In 2002 Walmart set foot in Japan with the purchase of a 6 percent stake in the 371-store Seiyu chain, a struggling Japanese retailer.

Despite continued losses, Walmart gradually raised its stake, making Seiyu a wholly owned subsidiary in June 2008.

JapanNational LanguageJapanesePopulation (2012 est.)126,659,683(5th largest)GDP (PPP 2011 est.)USD 4.440 trillionCurrency

GNI per capita

Land Area

Education LevelJPY (Japanese Yen)

USD 42,150

364,485 sq km

15 Years average education

99% literacy rate

90% of students graduated from high school, and half graduated from University or Junior College5.Japan retail prospectJapans retail market is the worlds second largest, worth some US$1,124 billion (135 trillion yen) in 2007. Benefiting from a base of sophisticated consumers with high levels of disposable income, per capita retail expenditures have reached US$8,800.

Japan is a mature market, yet it hums with the dynamic development of new businesses, urban renewal, and local city development, presenting a broad range of opportunities for market entry.

Japans Retail Sector Attracts throughout AsiaJapans retail market attracts consumers from across Asia. The number of tourists traveling to Japan from other parts of Asia continues to grow, with roughly 35% citing shopping as one of their reasons for visiting. Moreover, womens fashion magazines from Japan are especially popular in China, Taiwan, Hong Kong and South Korea, highlighting the power of Japanese retail to resonate throughout Asia. For foreign companies, Japans market holds significant opportunities for advancing into other Asian markets.6

Market Shares of Major Forms of Retail in Japan7As can be seen from the pie chart, Walmart entry to Japan as General Supermarket / Department Stores retail model means that its entering a relatively small market, at least when compared to other forms of retail in Japan.

Shopping centres in Japan8

Quality vs PriceJapanese tends to prefer quality over low prices, which constrasts with Walmart core value: EDLP (Every Day Low Price).

When a nation has a very strong purchasing power, such as Japan, why settle for cheap stuffs when you can buy high quality expensive products and still have money to spare?

Japan: Minimize Me!Japan is a small country with limited spaces, which has several implications for Walmart as below:

Small housings and apartment sizes, with high rent prices means that Japanese would need to minimize their purchases. Lack of storage room to store purchases. A typical apartment in Japan would be 1LDK (1 room apartment with Living, Dining, and Kitchen area). Room size in Japan is measured by Jo (1 Jo = 1 tatami/Japanese mat = .88m x 1.76m). 1 LDK apartment would be about 18 Jo, which measures to only 27,55 sqm.

Several small purchases.Minimize purchases, they would make their purchases several times a week, in small quantities. This means that stores would have to be readily available within reasonable distance, and bulk purchasing is discouraged. Compared to Walmart usual practice of centralized, big stores, with bulk purchasing to save costs, a neighborhood convenience store would be more suitable for the Japanese people.

Japan: Minimize Me!High operating costs, especially because of the prices of rent and buildings in general. Average commercial land prices in Japan is 156,857 Yen (USD 2,017)/sqm, with average commercial land price in Tokyo reaching 1,551,400 Yen (USD 19,956)/sqm, followed by Osaka with average commercial land price of 493,700 Yen (USD 6,360)/sqm.

Inability to apply original supply chain modelLots of stores, lots of supplies to be delivered, but no warehouse space, or overtly expensive warehouse space, since space is a premium in Japan. Walmarts supply chain management that is one of the strengths of Walmart in US, and based on US model, can't be applied here. That's why Toyota invented JIT: to avoid the constraint of using warehouses, and hence, adding more costs to the product line.

Japan: Minimize Me!Waste Disposal in Japan:Trash categorizationIn Tokyo, trash (gomi) has to be divided into three categories (combustible trash, non-combustible trash, recyclable trash) for proper disposal. Costly trash disposal procedureDisposal of bulky waste, such as a table, a shelf, or an old TV, requires a special procedure. You need to call the local ward office and arrange for a time for them to pick up the bulky waste. Before they come, however, you need to buy a sticker to stick on your large trash. To throw away an old TV, for example, costs about 300 yen.Impact on WalmartThis legendary Japanese environmental consciousness about waste disposal, added to their minimalist lifestyle, would discourage any bulk purchases from Walmart, effectively nullifying Walmarts economic-scale-driven model.

Heavily guardedbarrier of entry for new retailersWalmart vs Japanese Manufacturers and SuppliersLine of governanceRetailers effectively represented the interest of the manufacturer, rather than that of consumers (Tsukiizumi, 2004)

Protection from aboveRetailers are often protected from financial risks by wholesalers and manufacturers through a number of distinctive market practices (such as rebates). Price and distribution controlManufacturers and wholesalers controlled prices by enforcing districting and exclusive dealerships.Closed-network impact to government For foreign retailers, Japans complex retail and distribution system has long been inaccessible, so much so that the U.S. government considered it a nontariff barrier and a structural impediment for U.S.-Japan trade

Walmart vs Japanese Manufacturers and SuppliersJapan-US Geert-Hofstede comparison15Power Dominance Index

Relatively equalJapan is more hierarchical than US.Individualism Index

ContrastingCollectivism of supply chain and relation to customer is difficult for US.Masculinity Index

ContrastingJapan strives for quality and perfection. While Walmart enters market with value-goods approachUncertainty Avoidance Index

ContrastingJapan may have numerous restriction and laws which may be viewed as unnecessary by US.Long Term Outcome Index

ContrastingJapan may plan ahead and more punctual and strict, contrast to US.4 contrasting elements may cause business relationship to be more difficult between Walmart and Japan marketFurther cross-cultural analysisTrompenaars Individualist Walmart (US) vs. Communitarianist Japan.Verbal Communication Japan vs US(indirect vs direct) / (succinct vs elaborate) / (contextual vs personal) / (affective vs instrumental)Communication Flows Japan vs US

Why Wal-mart cant find happiness in JapanFirst changes brought by Walmart is by successfully persuading Seiyu to dismiss 25% of their HQ staff, including 1500 employees and managers.Japan never have anything like this mass layoffs, because this kind of action would create too much embarrassment for a typical Japanese company.Walmart, a US corporation, is seen as the outsider who meddle too much in Japans community (Communitarianism)Walmart viewed it as a companys priority to cut cost, in order to implement EDLP (individualism)This created a climate of resistance for policies that Walmart is trying to implementIntroducing cheap products from China doesnt help, especially with bad relations between Japan and China. cross-cultural analysisTrompenaars and Geert-HofstedeConformist Society (High Uncertainty Avoidance, High Communitarianism)

High communitarianism: high peer pressure, need peer approval to make decisionsHigh uncertainty avoidance: tried and true is better, something new is to be avoidedVariety offered by Walmart is not attractive to Japanese, who tends to choose a small selection of tried and tested product.Not to mention, they are wary of the new products offered by Walmart

Our recommendationsAlternatives for Walmart and Seiyu18Alternative 1: Riding the disaster. Japan was hit by recession during the 2008 period. This increases demand for EDLP due to decreasing consumer buying power. This shows in increasing sales in Walmart Japan (Seiyu) from November 2008 (World Economic Crisis time).Enter 2011. Japan was hit by tsunami and this event occurs again. Seiyu sales rose again during this period. Walmart could perform market survey to determine again Japans interest in value goods. If results are positive, Walmart could try once more to grab the value goods market.Alternative 2: Think global, act local.A nation with low to medium purchasing power would be great for EDLP as well. Walmart has to adapt to premium-lover Japan, and it's not easy. Different nation, different culture, different strategy: universalist approach may look simpler and less costly in the long run, but there are cases where there are countries with unique culture. Especially with a with a very proud, traditionalist, conformist society like Japan where others have followed. What do you think?