MUJI Case Study in China, Korea, and Japan

Professor: Chun Zhang
Date: 03/15/2014
Team Member:
Anqi Liu
Jiayuan An
Jing Zhou
Rui Zhao
Dongyang Zhang

Table of Contents:
Introduction……………………………………………………………………………3
Company and Product…………………………………………...……….……………3
Evaluating Market Attractiveness…………………………………………………..4
Country Identification…………………………………………………………………5
Political Risk………………………………………………………...………………..5
Environmental Factor………………………………….……………..………………6
Preliminary Screening…….………………….…………………….……………….6
Country Rankings……………………………….……………………………………7
Cost of Transportation………………………….…………………….………………8
In-Depth Screening Criteria………………….………….….………………………8
Market Size and Growth………………………..……………..………………………9
Competitive Intensity…………………………..………………...……………………9
Segmentation……………………………………………….….……………………10
Appendix………………………………….…………………………………………12
Work Cited……………………………………..………………….………………...14

Introduction
MUJI is distinguished by its design minimalism, emphasis on recycling, avoidance of waste in production and packaging, and no-logo or "no-brand" policy. The name MUJI is derived from the first part of Mujirushi Ryōhin, translated as No Brand Quality Goods. If people say it is a brand, it is better to say MUJI is a philosophy of life. MUJI does not emphasize the so-called fashion sense or personality nor endorses popular brands should raise his status. On the contrary, MUJI is coming from the consumer point of view to develop products that "plain handy".
When MUJI promote rational consumption, the company also let customers reach a great psychological satisfaction, and redefined the true value of the "plain handy". People concerned about environmental protection and international, and these ideas are already in the minds of many people. For example, the environmental problems brings to the Earth and the shadow of human existence, it is been attention and reflection solemnly, humans try to implement environmentally friendly as from everyday life and seeking the right response. And the MUJI’s idea is exactly no materials waste and focus on environment issues of commodities. Our product bed linen and blankets is the representative product of this idea in MUJI. This is our firm-specific advantages and potential specific advantages.
After evaluating Japan, China and South Korea’s overall market which included market attractiveness, preliminary screening and in depth screening criteria, we will choose one country with lowest risk and highly profitable to be our target country and do the future analysis.

Country Identification & Evaluate General Environment
From the Step 1, we will evaluate political risks and general environment of the MUJI in China, Japan and Korea. From the proprietor of the MUJI said, there is No country can take the place of the Chinese market since the emergency of territorial dispute between China and Japan. There are a lot of Japanese entrepreneurs are choosing to take the " China plus one" line, in order to reduce the risk of investing in the Chinese market. But the proprietor Matsui Tiramisu said this approach is wrong, to be honest, it is impossible to find a country to replace the Chinese market in the real world. (Jiang, 2013) In 2013, MUJI had 390 stores in Japan and they planed 100 stores in China. That is mean; the Chinese market is equivalent to a quarter of Japan's domestic market. According to their plan, within 10 years, China's total domestic "MUJI" store will as much as Japan, the total sales will reach the same level. There are many Japanese entrepreneurs prefer to take the "China risk" for everything. But everyone should know there is no business opportunity for not taking risks. Even China market risk, they will continue to develop. Matsui Tiramisu firmly believes that the more Chinese market they entre, the greater profit of enterprise they will have. From these information people can know the stability of the MUJI in Chinese market is real high, and it will not give up the Chinese market because of the politic risk. And as the birth land of MUJI - Japan, they do not need to worry about the stability because of the politic risk. And the Korea is just like any other developed country; there is also no conflict between Japan and Korea, so the MUJI does not need to worry about it either. Consider the Possible influences of international terrorism or national animosity of the international markets selected toward MUJI’s home country just will happen in China possibly. Like a few month ago, the Diaoyu Island incident. There are many cynics beating, smashing, looting, and burning in Japanese stores. I think MUJI also under the influence because this event.
To consider about the general environment of the selected countries, we will analysis four parts to evaluate general environment. Both Japan and South Korea are developed country and China is a developing country. Also Japan is the home country of MUJI.
Consider about the cultural environment, according to the Hofstadter’s Cultural Dimensions. MUJI market in Japan is collectivism; their primary goals are group achievement. It has high uncertainty avoidance and power distance. It is a long-term orientation. And Japan is the masculine culture. As same as China and Korea, they are both similar with Japan. Both of these two countries are collectivism. They all have high uncertainly avoidance and power distance. They are both long-term orientation and masculine culture.
As for the administrative environment, in Japan, “the government system is a parliamentary government with a constitutional monarchy. The chief of state is the Emperor and the head of government is the Prime Minister.” (Japan: Introduction) In China, “the government system is a Communist state. The chief of state is the President and the head of government is the Premier.” (China: Introduction, Global EDGE) In Korea, “the government system is a republic. The chief of state is the President and the head of government is the Prime Minister.” (South Korea: Introduction, Global EDGE)
As for geographical and physical environment, these three countries are close to each other, so they have the similar climate. Although, China has colder weather than Korea and Japan in winter, it doesn’t influence the MUJI marketing in China during that period. And China’s dominion is bigger than Japan and Korea, it has more available areas, therefore it is good for MUJI to open more retail stores in China.
To think about the economic development, Japan has a market economy in which the prices of goods and services are determined in a free price system. It has a higher level of economic development. The disposal income in Japan is more flexible. China has a market-based system, changed from a centrally planned system in the 1970s. Relative to the developed countries, China has a lower level of economic development. And the income distribution is imbalanced; people in the east of China have more income than people in the west of China. South Korea has a mixed economic system in which the economy includes a variety of private freedom, combined with centralized economic planning and government regulation. The available disposal income is active relatively.

Preliminary Screening
Preliminary Screening
Through the macro-level indicators, which we ranked three countries on a scale of 1 to 3, 1 representing the best country, 3 is the worst of the three countries. China is the most potential market among those three countries. Kenneth Rogoff said in his article “Purchasing power parity is an economic theory that states residents of one country should be able to buy the goods and services at the same price as residents of any other country over time. Why do economists say that? Ultimately competition in international trade allows people to shop for the best price. In other words, everyone's purchasing power will become equal, or reach parity. PPP is based on the law of one price. This states that once the difference in exchange rates is accounted for, then everything would cost the same.” (Kenneth Rogoff, 1996). This does not mean that this is the only way to trade equally in the reality; we also have to consider the import and export taxes, tariffs and the costs of transportation, which we will discuss later. However, this is a very critical issue for international companies like MUJI, because they have to find the balance of their revenues between its own country and other foreign markets. According to The Big Mac Index, selecting base currency as Japanese yen, which the raw index shows that Won (South Korea currency) is overvalued by 16.6 percent, but Yuan (Chinese currency) is undervalued by 7.8 percent. In addition, the actual exchange rate between Japan and China is 0.06, and between Japan and South Korea is 10.24 (Mig Mac Index, 2014). From the annual report of MUJI in 2013, shows that revenue from operations Japan made 145.832 million yen, by contrast, Asia including South Korea and China and other countries only made 24,542 million yen annually that indicates major profits are earned domestically (Annual report from MUJI, 2014). (Table 1)
As for the costs of transportations there are huge geographical differences among those three countries. The chart above illustrates the annual aviation market of Japan, and the top 3 countries best connecting with Japan is USA, China and South Korea. This chart could show the demands for traveling to Japan are large, it is much easier for international companies like MUJI to expand its international markets, but the costs of the transportations are relatively higher than other transportations. However, Japan is surrounded by ocean, which obviously sea transportation is their first choice. Unlike the U.S.A. China and South Korea are geographically much closer to Japan, which could not only saving a lot of money on transportations, but also could save a lot of time. In conclusion, with all of these things in consideration, we have considered China as the best place for us to broaden our geographic scope.

In-Depth Screening Criteria
Market size is one of the fundamental measurements that must be taken on the market. For a company, most of its expenses are related to market size; for example, how many stores they need or how many labors they need. If a company want to invest on other countries, it is important for them to get the accurate market size from different countries; on one hand, they do not want to over-invest based on the market size, on the other hand, they do not want to under-invest in large, fast-moving markets.
China, officially the People’s Republic of China, has a population over 1.351 billion. In current year, China’s GDP is 8.227 trillion in US dollars; in 2012, China’s GNI or GNP per capita is $9,040.0 (Appendix A). The number of stores in China is taking an increasing trend in the overall Asia region (see Appendix F). Moreover, In China, as living conditions continue to improve, people are becoming more and more willing to invest in home decoration. According to findings of a consumer survey on furniture conducted by the Hong Kong Trade Development Council (HKTDC) earlier, mainland middle-class consumers are placing more and more emphasis on home decoration, with 73% of the respondents saying that they are more willing than before to spend money on purchasing or replacing home decorative items. Moreover, there is an increasing number of consumers choose to buy “eco home”. According to HKTDC’s consumer survey, over 90% of the respondents are interested in using green, eco-friendly materials and are willing to pay a premium of 14% on average in purchasing products made of green material (http://china-trade-research.hktdc.com/).

Japan, as a developed country, has a relatively small population around 127.3 million. Japan’s GDP is 6.1 trillion in US dollars, it’s GNP per capita equals to $36,300.0 in 2012 (see Appendix B). In Japan, there are 379 stores and stores locate in different regions (see Appendix C). Revenue from directly managed business in Japan is 124,506 million yen; the revenue from domestic supply business is 26,528 million yen. The sales in last year are 1,690 million yen, which is better than plan (see Appendix D). South Korea has 50,004million population; GDP per capita is $30,801 in 2012 (see Appendix E). MUJI businesses revenue in Asian region is 19,272 million yen (up 27.3% YOY) and equals to 10.2% of total revenue from operations. MUJI’s products are more popular among the younger Koreans, most of the customers are college students or the younger people who buy a new house.
Competitive Intensity
MUJI is dedicated to providing a “simple, elegant and comfortable lifestyle at reasonable prices”. Responding to the different consumer demand, MUJI has designed and developed countless successful products. However, there are still some numbers of competitors in the same industry, one of the biggest competitors is IKEA. In the recent years, IKEA try its best to reaching more of the many people around the world. IKEA is famous for its modern design, low price and ability to adapt to different countries. In fiscal year 2010, US$23.1 billion worth of goods were sold. Moreover, IKEA grows market share as global sales rise. “Global sales jumped 3.1% to 27.9bn euros in the 12 months to the end of August” (http://www.bbc.com/news/business-24516951). Also, there is a strongest growth in Russia and China in recent years. However, IKEA is facing big problem of quality; there are a lot of consumers complain about its’ poor quality. In conclusion, MUJI should prepare well for its fierce competition in the industry.

Segmentation
MUJI as one of the most famous retailer brand has already entered lots of different market around world. We will majorly describe MUJI’s bed line & blankets product and how are they segment theirs customer in China, Korea and Japan.
China, as one of the fastest growth economic country, could be a great market to develop. MUJI’s target customer in China is young people who like concise style and very care about bed line’s material also available to afford the high price product. But currently China has a very serious problem with disparity of wealthy distribution. Rural area with weak infrastructure and people do not have enough income to allowed them purchase MUJI’s product. The high growth rate of economic also makes a lot of “new money” which has great purchase power and the child of “old money” already growth up. That could be a very huge portends market. Korea and Japan are both developed country and theirs market has developed pretty complete. The problem of wealth distribution is not as much as China has. So the target market of MUJI in both Korea and Japan are also young people whom from urban area and very care about quality life, likes simple and nice design.
People in both Korea and Japan have the ability to pay for themselves (average GDP $30801 in Korea, $35178 in Japan). (GlobeEDGE) Based on theirs salary, they are able to spend more for theirs life quality. Not like China, over 60% of worker earns very low salary (average GDP $9233), (GlobeEDGE) which is not able to pay for high price stuff to decoration theirs life.

Appendix
Appendix A
Appendix B
Appendix C
Appendix D Appendix E

Appendix F

Work Cited 1. Kenneth Rogoff, Journal of Economic Literature, Purchasing Power Parity Puzzle, June 1996 http://useconomy.about.com/od/glossary/g/ppp.htm 2. D.H. & R.L.W., the Big Mac Index, published by The Economist Newspaper, January 23rd 2014. http://www.economist.com/content/big-mac-index 3. Annual report of Ryohin Keikaku Co., Ltd. 2011. http://ryohin-keikaku.jp/eng/balance/pdf/annualreport_2011_e.pdf 4. Devesh Agarwal, Potential Impact of Japan Earthquake on the Air transport Industry, March 22, 2011 http://www.bangaloreaviation.com/2011/03/potential-impact-of-japan-earthquake-on.html . 5. http://globaledge.msu.edu/global-insights/by/country 6. http://globaledge.msu.edu/countries/south-korea/ 7. http://globaledge.msu.edu/countries/china/ 8. http://globaledge.msu.edu/countries/japan/ 9. Feng, Jiang, "There is no country can instead of Chinese market", www.JNOCNEWS.JP. JNOCNEWS. August 1st, 2013. March 16th, 2014