Wal-Mart, the second largest retailer in the world, entered Japan in 2002. It used its common foreign strategy of creating a joint venture by purchasing large stakes in local retailers and taking control of ownership by gradually increasing the investment. However, its standard approach has backfired as WAL MART did not take into account the specifics of the Japanese retail market.
What went wrong?
1. Japanese buy in small quantities
Contrary to the Americans, Japanese tend to buy goods in small quantities as they are not used to make weekly supplies. This trend can be partly explained by the high cost of real estate. As a result, Japanese tend to avoid unnecessary purchases and keep everything to a minimum. However, WAL-MART fosters bulk purchasing and it was something that people were not used to do.
2. Concept of super retail store is not accepted
Since Japanese make small volume purchases there are many small and middle-sized retail stores in the market. In the light of this fact, the idea of going to the megastore is simply not practical for the Japanese.
3. Japanese tend to buy fresh food
WAL-MART is offering a huge variety of pre-packaged products. This, however, is not desired by locals who opt for the fresh products.
4. Japan loves luxury goods
Japanese see high price as index of high quality. WAL-MART is not catering high-end segment of the market. It offers “good deals” instead. This can be perceived as marginal and deter people from buying.
5. Supply chain management
There is a big number of small suppliers in Japan who cater to the limited number of retailers. For this reason, there are very close relationships between them. Therefore, it is hard for a newcomer to penetrate the market.
6. Dealing with trash
Disposing bulky waste can be quite costly in Japan, which created special environmental consciousness among locals. That is another reason why they do not buy things in high volume. All this multiplied by the minimalistic attitude drove customers away from WAL-MART.
Collectivism as a way of thinking
It creates high peer pressure and makes people to look for approval when they act.
High uncertainty avoidance
Tried is always better. This is why Japanese were very reluctant to consider concept of megastore for example.
Masculinity vs Femininity
Japanese look for perfection and quality in products. Whereas WAL-MART offers good value approach.
Power distance index
Japanese society is very hierarchical, which explains difficulties experienced by new market entrants.
It encourages modest spending habits and stops people from buying unnecessary things. As it often happens with bulk buying, people do not consume everything they bought and end up throwing products away. It is another reason why Japanese prefer buying in small quantities.
What can we learn from WAL-MART’s experience?
Do your research. Western companies often underestimate their research while entering Asian markets, which may lead to costly mistakes. Here are some points to pay attention to:
- Purchasing behavior
- Lifestyle habits
- Average income
- b2b/b2c market structure and relationships
- Cultural differences (e.g. by Hofstede)
Asian marketplace is a tough one
WAL-MART was not the first company that struggled in the Asian market. Popular ecommerce site eBay could not compete with its Chinese counterpart TaoBao because former did not grasp the nature of the relationships between buyer and seller in China.
Another example would be Home Depot with its DIY approach. Turned out that Chinese were not prone to the tinkering and fixing stuff themselves. Moreover, labor costs are quite low there so it no wonder that many people use services of handyman. As a result, Home Depot shut down all operations in China. Whenever expanding into Asian market, companies have to be extremely cautious. The differences between western and eastern business cultures are so vast that every extra effort spent on research will prevent future revenue losses. Most importantly, it will save brand’s image and reputation since they are impossible to recover sometimes.
Walmart to quit Japan for good?
In July of 2018, the Japanese business publication Nikkei reported that Walmart was preparing to sell Seiyu, a Japanese supermarket chain it acquired in 2008, and would possibly leave the Japanese market altogether. While Walmart was quick to deny these rumors, the move could be an attractive choice for the company given Walmart’s failure in Japan.
As for why Walmart failed in Japan with Seiyu, the reasons can be largely attributed to the supermarket’s struggles to compete with the rapidly expanding online marketplace. Earlier in 2018, Walmart partnered with e-commerce platform Rakuten to expand its digital footprint with Japanese customers. Walmart has sought to prioritize its e-commerce offerings as part of its overall global anti-Amazon strategy, something to which Walmart stockholders have been paying very close attention.
Japan ranks highly on a number of Hofstede’s cultural dimensions, and Japanese uncertainty avoidance along with power distance in Japan may have combined to provide Walmart with little chance for success. Countries with high scores in these categories are typically harsher to new market entrants, as customers are both more inclined to trust dominant brands while being less willing to experiment with new options.
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