Group 7 Presents : | Tayto in Japan |

Executive Summary

For the analysis of bringing Tayto into Japan we used three different tools to analyze and conclude on three different levels.
The PEST analysis analysed the country from more of a macro level. From this analysis we learned that the political system is similar to Irelands, but has experienced some recent turmoil. The economic situation is still very strong, but has been in a slow and pretty steady decline caused by the Asian financial crisis and the recession. We learned they are a typical high context culture with strict rules, and long decision times. As well they are a technologically advanced culture with good infrastructure.
To look at the relation of our product in the market we used the diamond analysis. This showed that Japan has a great work force, and good access to relating and supporting industries. There is also an established demand for potato chips, but seems to be a gap in the market that Tayto could exploit.
The SWOT took a much closer look at Tayto and determined that even though it has a strong presence in Ireland and the UK it is still not a huge global player. It also pointed out some cost cutting opportunities, via FDI and further emphasised the large population as an opportunity for Tayto it also made clear that competition in the snack industry is everywhere, and the costs of setting up a business via FDI could be very high.
Finally we drew the conclusion that given all the positive and negative aspects, Japan posed much too good a market to pass up. It was recommended that Tayto engage in an exportation strategy to minimize risk and cut initial costs.

Table of Contents Academic Integrity 2 Executive Summary 3 Introduction 6 Company Overview 6 Country Overview 6 PEST Analysis 7 Political Analysis 7 Role of the Government 7 Legal System 8 Economic Analysis 8 Socio-cultural Analysis 9 Technological Analysis 10 Porters Diamond Analysis 10 Factor conditions 10 Demand Conditions 11 Related and supporting industries 11 Strategy, structure and rivalry 12 SWOT Analysis 13 Strengths 13 Weaknesses 13 Opportunities 14 Threats 14 Marketing and Logistics 15 Conclusion 16 Recommendations 17 Bibliography 18 Appendix 21 Fig A– Six Codes 21 Fig B – Labour Laws 21 Fig C – Economic Activity 21 Fig D – Import Numbers 22 Fig E – Chip Flavours and Consumption Frequency 22 Fig F – Starting a Business Costs and Exporting Costs 23 Fig G – Pros and Cons of Report 24 Pest Analysis 24 Diamond Analysis 24 SWOT Analysis 24 Meeting Log 25 Personal Reflections 28

Introduction
Company Overview

Largo Foods is the leading manufacturer and distributer of premium snack foods in Ireland. (Largo Foods, 2009) They are a privately owned company that purchased the rights to Tayto in 2005. (Largo Foods, 2009) Tayto, a company that produces crips, was established by Joe (Spud) Murphy in 1954, and is now Ireland’s number one selling potato chip. (Largo Foods, 2009) Unfortunately, sales are limited to Ireland, the UK and selective parts of continental Europe. (Largo Foods, 2009) Due to its large success in these specific areas, there is no doubt that Tayto has the ability to penetrate another global market.

Country Overview

Japan is an island resided in Eastern Asia in between the North Pacific Ocean and the Japanese Sea (CIA World Factbook/Japan, 2009). The country is vulnerable to many natural hazards such as volcanoes, tsunamis and typhoons (CIA World Factbook/Japan, 2009). While much of the globe is adopting a “green” oriented environment, one of japans main problems is pollution (CIA World Factbook/Japan, 2009). Pollution from the factories creates acid rain falls which compromise the quality of water and aquatic life (CIA World Factbook/Japan, 2009).
The Japanese population remains at 127,078,679 (as of 2009) which is ranked 10th most populous in the world (CIA World Factbook/Japan, 2009). The largest amount of the population resides between 15 and 64, with 64% of the population (CIA World Factbook/Japan, 2009). Despite this, the country has a rapidly aging population, however, the life span in Japan amazingly high at about 82 years (CIA World Factbook/Japan, 2009).
Japan is reliant on their exports ($746.5 billion 2008) and imports ($708.3 billion 2008) (CIA World Factbook/Japan, 2009).Clearly, they are highly reliant on foreign markets for a prominent share of their economic output. Due to the global financial crisis, the net exports are declining since world exports are also decreasing (MIEPA, 2009).
Overall, Japan consists of a pro-business climate (MIEPA, 2009). The government is highly in favour of creating jobs, and most of the population has high career motivation (MIEPA, 2009). Japan is a powerful technology based industry as they are known to effectively innovate products and services. In fact, many Japanese companies are overseas and are leading companies in the world (MIEPA, 2009). Although there are a number of procedures to start business in Japan, they do have a corporation law that provides incentives. Although this isn’t very favourable for foreigners since there umpteen costs associated with starting a business. In fact, according to doingbusiness.com, Japan is ranked 44th and the USA is ranked 4th in the world for the ease of doing business (Doingbusines.org/Japan, 2009).

PEST Analysis
Political Analysis
Role of the Government

Japan is a democratic country with a constitutional monarchy and parliamentary style government (CIA World Factbook-Japan, 2009).The Emperor of Japan, Akihito, is a symbol of the state and unity of the people (CIA World Factbook-Japan, 2009). The Emperor has little power since the decision making process is adopted by the Prime Minister (Yukio Hatoyoma) and his elected National Diet (CIA World Factbook-Japan, 2009). The Prime Minister is elected by the Emperor for the term of 4 years (MIEPA, 2009). However, due to the large amount of political turbulence, it is common to have an incomplete term. This turbulence indicates that there is political instability that is unfavourable from an investing perspective.
In fact, in 2009, there was a change in the leading governmental party. After 54 years of ruling, the Social Liberal Democratic Party has lost their power to the Conservative Democratic Party (MIEPA, 2009). This indicates that there will be profound changes in the conduct of Japanese politics. Since these changes are recent and currently unpredictable, Tayto should be wary of political instability if entering the market.
According to the Corruption Perceptions Index in 2008, Japan is tied with the USA at 18th in the world (MIEPA, 2009). There has been a Political Funds Control Law implemented in order to decrease corruption. This intervention displays the efforts of the government to decrease corruption which makes it more favourable for Tayto from an investment perspective.
Legal System

The Japanese legal system is largely based on the Civil Law of Europe with English-American influence (MIEPA, 2009). Their law is based on a collection called the ‘Six Codes’ which can be viewed in Appendix A (MIEPA, 2009). Their constitution encompasses equality and democracy which is similar to that of Irelands and thus is somewhat familiar to Tayto.
Japan also has many labour laws in place similar to those in Ireland that make the country a favourable place for investment in terms of being ethical (MIEPA, 2009). Refer to Appendix B for the list of labour laws.

Economic Analysis

Since WWII Japan has become the third largest economy in the world with a GDP of over $4.3 trillion US. (Dr Claudine Kearney, Japan Country Summary, 2009). Mainly due to Government-Industry co-operation, mastery of high technology, strong work ethic and only spending 1% of their GDP on defence (this allowed money to be spent elsewhere). These factors contributed to the growth that Japan experienced between 1960 and 1990 (MIEPA,2009). Soon after, the Asian Financial Crisis hit Japan hard as the debt to GDP ratio was horrific (John Cassidy, Globalization Week 10, 2009). In recent years, Japan’s growth has slowed down as 2008 marked a recession. This recession was a knock-on effect of the global financial crisis as business investment and the demand for Japan’s exports decreased. In an effort to stimulate the economy 0% interest rates were again adopted (CIA World fact book-Japan, 2009).
Japan is a very industrialized nation, with a high GDP per capita, and one of the best income distributions of the countries we have seen (CIA World Factbook/Japan, 2009). Their Services sector accounts for 75% of GDP and over 65% or their 65 million workers. As well the government heavily subsidises agriculture (CIA World Factbook/Japan, 2009). This shows that the country is very modern, and one of the most advanced economically that we have studied.
Conversely, as you can see in Appendix C there was an alarming decrease in the economic activity of Japan between 2007 and 2008. This paired with the large increase in inflation is a negative factor for Tayto.
The main problems for the Japanese economy is the Government debt The public debt is estimated at around 173% of GDP, the most out of any country we studied. Luckily most of this debt is actually internal debt and only 3% is owed to foreign countries (MIEPA,2009).
Japan’s imports in 2008 totalled $708.3 billion which is far greater than any other country we have looked at (see Appendix D). This identifies that foreign trade is massive and that they are open to foreign goods. The Yen is currently regarded as being quite strong as well as stable (Irish Times, 2009). This is important for us as a stable currency is vital when investing in a foreign country to prevent price fluctuation etc.

Socio-cultural Analysis

Japanese is the sixth most widely spoken language in the world, with over 99% of the country using it (Kwintessential, business etiquette). This is important to Tayto as it must be taken into account when entering into business negotiations and when packaging our crisps. Tayto should account for this by employing a translator.
Religion in Japan is dominated by Shintoism and Buddhism. Importantly for Tayto, Shintoism places importance on humans and nature co-existing (Encyclopedia, Japan). Tayto must acknowledge this and ensure that our product enhances its good name by respecting the environment.
In order for Tayto to be successful, it is imperative to understand that Japan is a high-context culture. They are collectivists; they also place huge value on building a relationship before entering into negotiations and as a result they take a lot longer to make decisions. Tayto must comply with the formal greetings (handshakes and bows), business card formality as well as the conservative dress. It is also important to remain patient throughout the negotiations and avoid frustration/conflict. Harmony is the key value in Japanese society and this is why confrontation must be avoided at all costs (Kwintessential/Business Etiquette, 2009).

Technological Analysis

Japan is a sophisticated and technologically advanced society. In contrast to the Philippines and Sri Lanka, their telephone services, internet, media and transportation are all well developed and maintained (CIA World Fact book/ Japan, 2009).
Their telephone service is comprised of 47,579 million (2008 – 4th in world) land line users and 110,395 million (2008 -7th in world) cell phone users (CIA World Fact book/ Japan, 2009). Japan is ranked 2nd in the world with their 47,249 million (2009) internet hosts (CIA World Fact book/ Japan, 2009). In addition, they have the most internet users with approximately 90.91 million (2008) in comparison to the other countries we have examined (CIA World Fact book-Japan, 2009). This is very attractive in terms of international business since all forms of communication with consumers and business people are readily available.
For the geographical size of Japan, their transportation is highly advanced and desirable for foreign investors. In fact, accessing the country wouldn’t be a problem at all for Tayto as there are 176 airports, 15 heliports, 10 ports, merchant marines as well as advanced roadways (CIA World Factbook-Japan). This is very desirable for Tayto since they can easily transport their product around Japan in a timely fashion.

Porters Diamond Analysis

Factor conditions

Japan has a population of 127 million which consists of 67 million workers. Employees in Japan are expected to work hard and demonstrate loyalty to their firm (CIA World Factbook / Japan, 2009). Furthermore, education expenditure accounts for 3.5% of GDP (CIA World Factbook/ Japan, 2005), and as result Japan has an extremely skilled labour force, ranked no. 18 in the world. This is both a positive and a negative for Tayto since they would require some skilled workers, but the wages of having mostly skilled workers could be high.
Japan has a very advanced infrastructure, which undergoes regular upgrading and expansion (Japan, Encyclopaedia, 2009). This is favourable for Tayto since transporting our product to and around Japan will not be a problem. As well should Tayto export, they can easily access the country as there are 176 airports and 10 ports.
Fortunately for Tayto, potatoes are one of the five principal crops; however, most of this agriculture is isolated to Northern Japan. (Springer, New York, 2008). Moreover, the land in Japan is scarce with a total mass of only 145,850 square miles (Japan World map, 2009) and thus partaking in FDI could prove to be costly.

Demand Conditions

The market for potato chips is huge in Japan (All Business, 2008). Japan along with the EU, Canada and Taiwan accounted for ¾ of U.S exports of potato chips in 2000 (All Business, 2008). The leaders of the potato chip market in Japan are ‘Calbee’ and ‘Koikeya,’ and their sole basic flavour is ‘light salt’ (Calbee chips, 2008). Clearly, the gap in the market is basic flavoured chips and Tayto could effectively cater to this. In fact, Japanese potato chip market is known for strange taste in potato chips for examples and frequencies of consumption refer to Appendix E.
Unlike Ireland, Japanese chip companies change the flavour of their crisps both seasonally and monthly (Calbee chips, 2008). Some consumers find the inconsistency very bothersome especially once they are accustomed to a flavour (Calbee chips, 2008). Tayto’s aim could be to introduce consistency to the Japanese potato chip market.

Related and supporting industries

Japan produces a fair amount of potatoes, 2.6 million tonnes in 2007, which is insufficient for their current needs (International Year of the Potato/Asia, 2008). Japan imports 650 000 tones of potatoes annually from China, the world’s number one producer (International Year of the Potato/Asia, 2008). If Tayto were to enter Japan it would have a large domestic crop, along with the world’s largest supplier very close by which could cut production costs.
Japan is a very progressive Asian nation and they have adopted a westernized style of shopping (Japan Guide/Supermarkets, 2008). They have over 8600 Super markets and over 42 000 convenience stores, most of which would stock snack type products (Japan Guide/Supermarkets, 2008). Since Japan has a large and widespread population, the umpteen selling locations will help cater to the 120 million Japanese consumers. The Japanese have started to distance from traditional self cooked meals and embrace a fast food, snacking culture. (Japan Echo Inc/Eating Trends, 2002). This is a huge positive for Tayto as the potato chip is largely a snack food. As mentioned Potato chips are abundant in the Japanese market and are actually doing very well. Tayto could look at this as an opportunity to get into a growing market and establish itself as a world player.

Strategy, structure and rivalry

Tayto can offer a stable set of chips into the market with constant flavours in order to hopefully gain loyal consumers. This will differentiate them from all other chips, as well as other snack foods in general. Tayto can ease into the market via an export strategy with some of its most popular flavours; this would be both cost effective and risk minimizing. Changing Tayto’s business structure to accommodate an Asian market division is imperative as the market; especially in Japan is, very intricate. Not only are tastes and preferences different but the business style as well. The keiretsu, which is a large vertically integrated business model, could prove to be tough to compete with (Tech Target, 2001). Having a division directed solely to the Asian market would be a great way to study and monitor this area and overcome some of the challenges. Intense competition in the Irish market has lead Tayto to be innovative and responsive to the consumer; and has given them a lot of experience which can be very useful overseas. The main difference is that Tayto is now working from a bottom up position as opposed to being the market leader.

SWOT Analysis
Strengths

Tayto is currently the leader in the Irish crisps market as they are the number one selling brand in the country with a well established reputation. (Largo Foods, 2009) Tayto has acquired great experience since they were established in 1954, and continue to grow with various mergers and acquisitions. Tayto’s success in Ireland and UK demonstrates the company’s ability to expand and flourish in multiple markets.
Tayto provides a versatile product line that caters to the needs and tastes of a large market. (Largo Foods, 2009) They have the ability to use this dynamic line to adapt to the various tastes of markets outside their current niche.
In regards to the global financial crisis, the crisp industry was largely unaffected. (Tom Abate, Sanfrancisco Chronical,2008) In fact, by 2010, crisp sales are expected to grow by 10.2% on a global scale. (Tom Abate, Sanfrancisco Chronical,2008) This is positive for Tayto since they were resilient during this time and the market for crisps continues to grow globally. (Tom Abate, Sanfrancisco Chronical,2008)

Weaknesses
Tayto offers a product that is inconsistent with the current healthy eating trend. Although Tayto provides some healthy alternatives, the selection is too limited. With the health movement becoming more of a concern for consumers, the crisp industry may encounter problems.
Currently, Tayto sales are limited to Ireland, the UK and selective parts in Continental Europe (Largo Foods/Tayto, 2009). They have yet to enter booming crisp consuming markets such as the USA and Canada where many global brands have been established. Tayto has no experience expanding in these large highly competitive markets which puts them at a great disadvantage.
The crisp market in is very competitive on a global scale; there are many brands that are internationally established such as Walkers and Pringles. The Tayto brand has yet to be established internationally, let alone in the European market and thus may encounter difficulties being a brand leader abroad with their relatively unknown name.
Opportunities

According to What Japan Thinks, 2008 over half of the population of 120 million consume crisps, which is significantly more than the current population catered to. (What Japan Thinks, 2008) Japan is also one of the major importers from the US further confirming the enormous presence and desire for potato chips.
Japan has an extremely skilled labour force compared to Sri Lanka.(CIA World Factbook, 2009) Were Tayto to move a manufacturing outlet there, they could find top consultants, managers and employees to operate their business and save on the high costs and hassle of sending over Irish expatriates. (Doing Business in Japan, 2008)
The potato crop in Japan and China is positive for Tayto. Manufacturing Tayto in Japan could reduce transportation costs significantly and create an opportunity to benefit from localisation. (Raymond Crotty,2008)
Japan participates in many International Organizations such as APEC and WTO (CIA World Factbook, 2009 . Both Ireland and Japan are members which is favourable for Tayto as it facilitates business transactions. (CIA World Factbook, 2009)

Threats

Japan is still recovering from the Asian Financial Crisis in the 90’s, and they have also been affected by the current global crisis (MIEPA 2009). Since 2008, unemployment increased 4% and the government continues to incur debt. This economy indicates that it may not be a viable time to penetrate the Japanese market.
The Japanese snack industry is massive; with international brands that have already penetrated the market such has Pringles (Cavalcade, 2007). It will be difficult for Tayto to establish their brand and become a leader.
Although the government encourages foreign investment, it lacks in providing financial incentives. You can start a business for 0 USD, but the administration and registration fees accompanied with the 55% tax rate can be overwhelming (Appendix F). (Doingbusiness/Japan,2009)
Marketing and Logistics

Market Strategy * Initially, Tayto should infiltrate the Japanese market using a direct export strategy. We feel that this is the best option and with Japan’s imports in 2008 totalling over $700bn (CIA world fact book-Japan), the country is clearly open to imports. * We will review this strategy after one year and will consider the opportunity of moving production to Japan where the climate is favourable for growing potatoes.

Language * Tayto will require a translator when conducting business with the Japanese and will also have to translate the information on the packaging. These are minor costs in relation to adapting the packaging and advertisements.

Transportation * The main expense will be transportation costs. This is another one of the reasons why we may eventually move production to Japan. With Ireland being so far away from Japan we are obviously going to have to spend a substantial amount of money in getting our crisps to the Japanese market. If Tayto exports, it would cycle every 11 days at a cost of $1047 USD/container (Doingbusiness/Japan, 2009).

Conclusion

Our analysis shows that there are positives and negatives to bringing Tayto into the Japanese market via the various forms of market entry. A brief summary of the pros and cons for each analysis is available in Appendix G. The PEST analysis showed that Japan, although being an economic powerhouse, has been in a steady state of slowed growth and decline in the recent years. The Asian financial crisis, high public debt, and the recession have lead to its decline. Conversely it has many positives; stable currency, great infrastructure, low corruption and still a very strong economy all make Japan a highly sought destination for both FDI and exporting. When applying our product to the mix via the diamond analysis we realized that there is a gap which Tayto could possibly exploit. As well, the large population, great demand for chips and vastly spread modern infrastructure make it enticing and easy to get crisps to Japan. Nevertheless, global competitors are present in the market and competition is fierce. Since land is scarce, FDI could be expensive. The SWOT analysis uncovered that Tayto has been resilient to the recession, as have snack sales in general, which is good for Tayto as it shows profits can rise in hard economic conditions. There are also cost cutting benefits via possible trade agreements both through supply of potatoes or possible exportation. However, it also showed that Tayto is a relatively small brand on the global scale, and breaking into such a competitive market could be risky. As well, it discouraged FDI even more with the fact that setting up a business is both costly and time consuming.

Recommendations

After gathering information from the analysis’s it is recommended that Tayto enter the promising Japanese market. The negatives associated with FDI, costs and time, coupled with the uncertainty of the actual size of the “market in the gap” make too risky to make the huge investment associated with any of the forms of FDI.
However, the risks, uncertainty, competition, and slowly declining economy do not overshadow the potential benefits of Tayto having access to over 120 million potential customers, and over 60 million current chip consumers. For these reasons we suggest exporting Tayto using a strategy already discussed. This would require product extension + communication adaptation, selling our same basic product in a way that appeals to the different consumer. This would best be accomplished by using the port facilities and then the great infrastructure to transport our product to all major cities, giving us the most exposure, at a minimal cost. We do see this being very successful, as Tayto would be creating stability in a constantly changing market. Down the road, new flavours could be taken aboard to catch those reluctant consumers. Once Tayto firmly establishes, some of the risks of FDI can be minimized and the possibility of establishing a plant can be re visited to try and cut costs further. Tayto is a company ready for expansion into foreign markets, and we feel that Japan is one market that cannot be ignored.