Case study

Toys “R” Us JAPAN

Case study

Toys “R” Us JAPAN

TABLE OF CONTENTS

Introduction 3.
Japan Background and facts: 4.
Background: 4
Facts: 5
Toys “R” Us Background 7.
The Beginning: 7
Market Expansion 8 More ways to shop Toys “R” Us 8
Evolving business 9
Toys “R” Us in Japan 9
Case analysis: 10
Attractive factors of Japan toy market: 10
Barriers to Entry: 10
Success Factors for Toy's "R" Us-Japan 11
TRU Strategy 13
Our opinion: 14
Recommendations: 15 Conclusion: 16 References:: 16

Introduction:

Toys R Us is the large distributor in the US and it is one of the more successful foreign retailers in Japan after overcome hard barriers. This successful is a result of right decision-making and strategy in overseas expansion by global retailer’s and gradual changes after entry into foreign markets. Also the strategy in respect of standardization adaption before and after entry has great effect in this successful.
Coming lines, shows some factors that attract TRU to join venture in Japan. Then, we will discuss group of barriers that TRU had overcome, and how it’s overcome these barriers. In the end, we will evaluate Toys “R” Us in Japan market.

Japan Background and facts:

Background:
Government: Parliamentary with constitutional monarchy
Prime Minister: Shinzō Abe (elected Dec 2012) Capital: Tokyo
Population: 127,368,088 Population Growth Rate: -0.077% (2012 est.), World Rank: 198th
Birth Rate: 8.39 births/1,000 population (2012 est.), Worl Rank: 217th
GDP: 4.34 Trillion (2008) GDP per Capita: $33,800
Industries: Consumer electronics, motor vehicles, machine tools, steel, and nonferrous metals
Exports: Motor vehicles, semiconductors, and office machinery
Currency: Yen Life Expectancy: Average: 82, Male: 78.8, Female: 85.6
Literacy Rate: 99% Unemployment Rate: 4% Internet Users: 87.5 million
Geography; Japan is located in the North Pacific off the coast of Russia and the Korean peninsula. The area of Japan is 377,873km². consists of four main larger islands and over 4000 smaller islands. The main islands are Hokkaido, Honshu, Shikoku, and Kyushu. Japan is over 70% mountainous terrain with approximately 18% land mass suitable for human settlement. Japanese cities are typically sprawling and densely populated. Tokyo, a megalopolis and the capital of Japan, is located on Honshu island. Central Tokyo has a population of 12 million people, with the population of the Greater Tokyo Area estimated at over 35 million people.
Population; There are over 127,078,679 (July 2009 est.) people living in Japan. For most of Japan's history its borders were closed to foreigners. As a result, Japan's society is very homogeneous, composed of 98.5% ethnic Japanese. The remaining 1.5 percent are mostly Korean, who number around 1 million.
Language; Japanese is the official language of Japan. Many Japanese also have some ability in writing and speaking English as it is a mandatory part of the curriculum in the Japanese educational system. Japanese uses four different writing systems; Kanji (Chinese characters), Hiragana (phonetic alphabet for native words), Katakana (phonetic alphabet for foreign words), and Romaji (western alphabet used to write Japanese).

Facts:
The following picture is summaries Doing Business 2016 data for Japan. The first section presents the Ease of Doing Business rank (out of 189 economies) and the distance to frontier (DTF)** measure, overall and by topic. The second section summarizes the key indicators for each topic benchmarked against regional averages.

The chart above gives us an interesting view of doing business index in Japan and how it has decrease in many aspects of doing business and how firms have to adapt to each of them.

If we explore Japanese culture through the lens of the 6-D Model©, we can get a good overview of the deep drivers of Japanese culture relative to other world cultures. (Figure 1) Figure 1 Geert-Hofstede Framework Comparison: Japan v/s USA

Toys “R” Us Background
The Beginning:
In 1948, 25-year-old Charles Lazarus turned his dream of creating a child-oriented business into a reality. A visionary for his time, Lazarus started a baby furniture store, Children’s Bargain Town, in Washington, D.C. to cater to the post-war baby boom era. Lazarus filled his store with cribs and baby furniture and ran it single-handedly, overseeing everything from bookkeeping to delivering merchandise to customers’ homes.
Continually looking for new ways to satisfy his customers’ needs, Lazarus introduced infant products and toys for older children into the store’s growing product assortment. The first toy he added to the inventory was a cradle gym. When it proved a strong seller, he added tricycles, books and other toys.
Almost 10 years later, Lazarus adopted the supermarket model for his store, which allowed customers to examine and pick out products on their own and pay for them at a checkout stand. With the opening of his second store, he settled on the name Toys“R”Us® with a backward “R.”

Lazarus believed that success meant focusing on the everyday shopper, such as a parent searching for the perfect birthday gift or a child hoping to spend his or her weekly allowance. Through his ingenuity, Lazarus expanded his fledgling business into a toy conglomerate that became a public company in 1978 with established community roots and a loyal customer base from coast-to-coast. With its iconic mascot Geoffrey® the Giraffe introduced in February 1960 and the catchy jingle, “I Don’t Want to Grow Up, I’m a Toys“R”Us Kid®,” Toys“R”Us has become one of the most recognized and beloved brands in the world.
Market Expansion
By the early 1980s, Toys“R”Us looked to diversify its portfolio by finding new incentives to attract parents with an extension of the “R”Us® brand. In 1983, the company branched out into children’s clothing when it opened its first Kids“R”Us® stores in Paramus, New Jersey and Brooklyn, New York. Although Toys“R”Us, Inc. closed its freestanding Kids“R”Us locations in 2003, the company remained committed to the apparel business and continued to sell a wide variety of name-brand designer and private label boys and girls clothing.
In addition to expanding “R”Us stores and brands in the United States, Toys“R”Us launched a worldwide presence in 1984 when the company opened its first international wholly-owned store in Canada and licensed operation in Singapore. Almost 10 years later, former President George H.W. Bush traveled to Japan to open the country’s first Toys“R”Us store. Now, more than 30 years after the first store opening, Toys“R”Us, International operates 745 stores and more than 250 licensed stores in 38 countries and jurisdictions outside the United States, including Australia, Canada, France, Germany, Portugal, Spain and the United Kingdom, among others. In 2011, Toys“R”Us, Inc. formed a joint venture with Li & Fung Retailing for the Toys“R”Us business in Southeast Asia and Greater China, acquiring a majority stake in its previously licensed business.

More ways to shop Toys “R” Us
Recognizing the incredible potential of the Internet, Toys“R”Us launchedToysrus.com in June 1998, and it quickly became one of the fastest growing sites in the toy and baby products shopping categories. Today, Toysrus.com is one of the most visited sites in the specialty toy and baby products retail category with a vast assortment of toys for kids of all ages. The site also offers exciting exclusives, helpful and distinct services, as well as fantastic deals every day. In addition, Babiesrus.com offers a wide selection of baby products and supplies and a convenient, premier baby registry.
Evolving business
Positioning the global franchise for the future, Toys“R”Us became a private company in July 2005 when an investment group consisting of affiliates of Bain Capital Partners LLC, Kohlberg Kravis Roberts & Co. (KKR) and Vornado Realty Trust completed the acquisition of Toys“R”Us, Inc. for $6.6 billion.
Toys “R” Us in Japan Year | Item | comments | 1989 | Founded | established operations in Japan in 1989 through a joint venture with McDonald’s Japan | 1991 | First Store opend | opened its first store there in December 1991 Japan celebrates its first Toys“R”Us location with a visit by President George H. Bush | 1996 | 50 Stores | Japan has continued to grow rapidly since that time, | 1997 | Babies“R”Us merchandise | Babies“R”Us merchandise was added to Toys“R”Us Shingu in 1997 | 2000 | e-commerce Operations Established | | 2000 | 100 stores | by end of 2000 | 2002 | First Stand-alone Babies R Us | first stand-alone Babies“R”Us store opening five years later in Shin Urayasu | 2007 | following a model Adopted in US and Canada | Toys“R”Us, Japan opened its first Side-by-Side store featuring Toys“R”Us and Babies“R”Us together under one roof. | 2000-2010 | | Toys“R”Us, Japan was listed on the JASDAQ from 2000 until early 2010, when it became a wholly owned subsidiary of Toys“R”Us, Inc. It is the second largest country, in terms of store density and volume | 2012 | | the company successively introduced and expanded a number of omnichannel initiatives, including Ship from Store, In-Store Pick Up and Order Online in Store, providing a seamless shopping experience no matter where or when a customer chooses to shop. |
Case analysis:
Attractive factors of Japan toy market: * Japan was the second largest toy market in the world. The “Statistics of Toys” of the Japan Toy Association estimated the size of the overall Japanese toy market on a retail price basis at ¥932 to ¥950 billion in 1991. * By the 1980s, Japan had developed a particularly high per capita income and toys sales had been growing despite the low birth rate. * Spending on children was particularly high, particularly in the early years of childhood, yet toy shops in Japan tended to have small selections and high prices

Barriers to Entry:
There are several challenges of international retailing. First of all, Cultural Complexities It is important to know your customer, their preferences, and values in any market. People in different countries place different values and priorities on different products. Understanding where consumers are buying and how much they are willing to spend is critical also.
Second challenge is Language Barriers and Different Communication Styles; The inability to communicate with customers is one of one of the biggest barriers. Translation, however, is not enough.
Third challenge it cloud be Shipping Costs, Duties, Taxes, Export Laws and Regulations; Perhaps one of the most daunting barriers for businesses selling internationally are shipping costs, duties, taxes, regulations, and export and import laws. When selling overseas, retailers need to consider the regulations and rules of each country. Restrictions in some foreign markets can even sometimes seem borderline ridiculous.
In case of Toys “R” Us there were similar barriers as mentioned up. These barriers in details were: * Legal restriction on establishment; in 1973 Japan’s ministry of International Trade and industry respond to small retailers demands by introducing “Big Store law,”. The law stated that local store owners must give their approval before a retail outlet with large floor space opened. * Complex distribution network of Japanese retail network. It involved three to five layers of intermediaries. In this complex network the prices of toys were suggested by manufactures. And the model was completely opposite to the method of operation of toys “R” Us who directly deals with manufacturers by passing all middleman. * The land prices were very high in that time because 80% of land mass was covered with mountains and also its hard to find empty space to build a large store. * Japan's social and political differences and consumer Behavior; their loyalty towards small shops were a natural reflection of the Japanese way of life, small shops also served a valuable social purpose, it was filled with under-employment workers or who going to retire soon. * The Japanese consumer is sensitive by nature Quality is more watchword than Price for them and preferred a personal attention from the shop-owner.

Success Factors for Toy's "R" Us-Japan * TRU is the large distributor in the US, and appealed for help directly through the United States Representative and other channels in order to change the Daitenho which is the local law that prevent TRU to expand the stores in Japan. * The Japanese government, in an effort to create good PR, waived the law and allowed Toy’s “R” Us to open a 3,000 square meter building offering 18,000 items. This was a big advantage for Toy’s “R” Us being that there were no other stores of that size. “By creating an overwhelming advantage, it was intended to stop competitors from opening opposing stores before they started”. * TRU had Den Fujita, President of McDonald’s Japan, as a local partner. He can help TRU to enter Japanese market because he had substantial experience with real estate and also had a lot of government contacts. * It was a recession in Japan in 1990s. Daitenho was revised. * TRU had a lot of experience in operating stores in many countries, TRU experiences to adapt the operation system and policy in order to enter in international market. * TRU has begun to carry products that meet the Japanese market. Not only products that are carried on from the American mainland, but also adding in Japanese- style things. * Eg: they have begun selling "Hina dolls" (dolls bought on March 3rd for a japanese festival) made by Toys'R'Us. * The one-stop-shopping business model. Predictably, Japanese buyers liked the discount prices that a global distributor could deliver. But, unexpectedly, the Toys "R" Us formula was also particularly well-suited to Japanese customs of gift-giving and receiving, said Mr. Barbour. For example, Japanese parents do not surprise their children with presents; instead, the children are involved in the process, choosing * Toys "R" Us' cultural flexibility. They worked with NTT Soft in Japan to create a website that accepted 10 payment forms and provided local portal access. Some innovations the expanded maternity section and the professional photo booth were local in origin. A big question was whether Toys "R" Us could transplant an American custom the baby registry to a culture that did not have baby showers. Since the baby registry is at the center of the client database that powers the firm's strategic marketing and research, Mr. Barbour supported a modest investment in limited-scale baby registry facilities; it caught on. * Japan Association of Toy Specialty Stores reported a 10-15% decline in members’ sales during the 1992 Christmas season By 1994, ratio of toy retailers adopting manufacturers’ suggested retail prices had dropped sharply over the previous five years from 70.1% to 29.4%.

TRU Strategy

* Entry Mode:
Toy’s “R” Us had a huge advantage, they signed on with McDonalds Japan to make this a joint venture with Toy’s “R” Us owning 80% and McDonalds owning the remaining 20%. This was quite an advantage because McDonalds had been so ingrained in the Japanese market that they were seen to many as being a Japanese company (Johansson, 183). “Toy’s “R” Us was able to utilize McDonalds in-depth market knowledge and research skills as well as the communication lines to the target groups of children and young families” (Johansson, 183). Also, there was competitive advantages with McDonalds for Toy-R-Us, like: * McDonalds has established business reputation in Japan , Image: excellent customer service and environment , Huge distribution network , Benefit from advance logistic systems * Huge market knowledge & research skills i.e. suburban and city area , Widely established location , Image of local precedent Den Fujita, Locally hired employees * More communications lines with target group children's and families gain competitive advantages, Easily located in many different places

* Marketing:
You must tailor your advertising to what is more accustomed in the new environment. You would think that a major company such as Toy’s “R” Us would advertise on television and radio to most effectively reach their target market; however, in Japan, radio and television are far more expensive and scattershot. What they found to be most effective in Japan was colorful inserts in newspapers that could be home delivered to ensure that children and mothers, which is their target market, would be reached.

Our opinion:

We agree with TRU strategy in using Joint venture with McDonalds Japan. TRU opted for entry to the toy market in Japan by using innovative retail format drawing on their experience of development in other countries. Also, TRU understand the different environment develop suitable strategic actions and become successful in Japan by left the management decisions to Den Fujita.
As we know each approach has advantage and disadvantage. Joint venture has the same as mentions below:
ADVANTAGES:
* Benefits from a local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems and business systems. * Risks are shared with the local partner * In many countries, political considerations make joint ventures the only feasible entry mode.
DISADVANTAGES:
* Risk of transferring the technology to the partner. * Does not give tight control over subsidiaries to protect from the global attacks. * Leads to conflicts and battles due to mismatch of goals and objectives. Also their used of transnational strategy, which is mixed of global strategy and multi domestic strategy. Global Strategy: * TRU stores in Japan are run on the “push“ system which TRU developed in the US. In this system store manager are responsible for the cost of operating their individual stores. * They keep the same layout of the shops and colure. Multi domestic Strategy: * Easing Adaption by producing Japanese toys * Employing Japanese

Why not others alternative strategies with McDonald:
Direct exporting: Contracting with intermediaries, such as distributors or agents, in the foreign market to perform export functions; perform downstream value-chain activities in the target market.
Risk:
* High shipping cost.
Foreign direct investment (FDI): Strategy in which the firm establishes a physical presence abroad by acquiring productive assets, such as capital, technology, labor, land, plant, and equipment
Risk:
* Japanese culture
Franchising: An arrangement in which the firm allows another the right to use an entire business system in exchange for fees, royalties, or other compensation.
Risks:
* Duplicate Toy R us product * Different wage policy and working condition * Mislead the brand name or standard of the service

Recommendations:

* Keiretus strategy : Develop stronger relationships with local suppliers and manufactures * Increase local supply / decrease imports / Lower operating costs * Sharing of local experience * Product adaption made easier as local suppliers have been made accessible * Creation of a competition barrier for potential foreign entrants (e.g Walmart) * The company should take this as an opportunity and introduce newer toys and games that can appeal to the older generations. * Invest in research to predict product-specific shopping habits. * Continue the current strategy of opening large store (side-by –side) stores.

Conclusion

Therefore, the recommended business strategy for Toy-R-Us is to format a business with McDonalds through alliance will give them opportunity to understand better Japanese consumers and markets.