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Challenge your Japan plan.

Fundamental assumptions upon which a Japan market strategy has been built, and the conventional wisdom about how business is conducted, may no longer apply.

Okyakusama wa kamisama desu," goes the popular Japanese saying: The customer is God. That conventional wisdom has by and large driven the competitive strategy of successful companies in Japan. Yet, there now appears to be a movement among some of that nation's most successful Japanese companies to strike a new balance between the needs of their customers and the requirements of containing costs. The new evidence is revealing:

* One large company operating hundreds of Japan's ubiquitous convenience stores is trying to boost profitability by reducing the number of deliveries to their outlets.

* Retail banks are foregoing an opportunity to enhance customer service by extending the hours of automated teller machine operation -- opting instead, as a group, to maintain current operating hours.

* At least one major auto maker has announced plans to reduce the number of new 1993 models by some 20% to cope with rising production costs.

* Consumer electronics manufacturers are breaking with recent tradition by actually lengthening product life cycles.

* Food processors are easing up in their race to stock shelves with a seemingly never ending array of new products.

These companies recognize that the over-arching commitment to quality and serving the customer will need to be met in more creative ways in light of new market conditions, not the least of which is the bursting of Japan's so-called "bubble economy."

Rather than trying to emulate the traditional approach of their Japanese competition, multinational organizations that have a long-term commitment to succeed in Japan would be wise to closely monitor changing conditions and prepare to undertake new initiatives that address quality and customer service in a larger context. They may, in fact, be required to embark on a competitive strategy of designing and implementing unique business processes that differentiate their organizations from their local competition. In effect, they will need to engineer flexibility into their organizations by integrating all its components -- strategy, operations, people, and technology -- so that the organization can respond to emerging market opportunities.

Entering the Japanese market has never been easy, but at least the requirements were clear: Design products that match Japanese buyer values; establish long-term relationships; deliver high quality. The barriers to entry have also been apparent. A June 1990 report from the U.S. International Trade Commission to the House Ways and Means Committee, entitled Japan's Distribution System and Options for Improving U.S. Access, cites the familiar litany of complaints posed by many market entrants. For example, most of the 75 participants interviewed during the course of the study "claimed that it is simply too expensive to enter the Japanese market unless a company has 'deep pockets.'" The high cost of land, office space, warehousing, sales outlets, a large sales force, and fast, small-lot deliveries were among the reasons cited.

But what is perhaps most interesting in the report is that "many participants seemed to believe that if only they adopted the same 'formula' as other well-known companies operating in Japan, they too would succeed." This adherence to the conventional wisdom will invariably lead most organizations down a one-way street. Instead, management should approach entry into the Japanese market as an opportunity to explore all the avenues before them. New economic conditions in Japan are creating new opportunities. But only by reengineering outdated business processes can they hope to steer clear of the traditional challenges and move forward toward the goal of achieving sustainable competitive advantage.

Myth of a Monolithic Market

In our experience with helping both foreign and domestic companies succeed in the Japanese market, we have seen that their piecemeal approaches to attaining competitive stature will typically yield short-term benefits at best. Instead, management must challenge the fundamental assumptions upon which a Japan market strategy is built. Ask the tough questions that challenge the conventional wisdom about the ways business is conducted.

Just because Japan has largely a homogeneous population does not mean that market entrants can ignore the disparate needs and values of its various market segments. In fact, recognizing that disparity, and engineering the organizational flexibility necessary for serving various market segments, can position companies to broaden market penetration, provide even greater levels of customer service, and still reduce costs.

The example of a leading beverage distributor illustrates the value of being able to respond to the different, and often shifting, preferences of various customer categories. This multinational company is already offering a full line of quality products, but it recognized that quality alone was insufficient for long-term success. The company decided to explore the potential benefits of reengineering its operations by conducting thorough research among its customers and benchmarking its own operations against those of local competitors.

Its customers were a varied lot: hotels, restaurants, department stores, and a mix of wholesalers of disparate size and sophistication throughout Japan. Research uncovered a wide range of distinctive preferences and requirements that these various market segments considered important. The example of small-lot deliveries, for example, always an expensive proposition, varied significantly even among respondents in a particular customer segment. At a more fundamental level, the report revealed that the wholesale beverage business in general is under new pressures that are driving a major restructuring with respect to strategy, operations, and information systems.

Overseas entrants that lack this kind of market intelligence run the risk of following a strategy that lacks validity under new market conditions. But with this kind of insight the savvy competitor can reengineer operational flexibility that empowers the organization to take advantage of the opportunities for cost-savings and greater market share that emerge from an industry restructuring.

Rethink Definitions of 'Quality'

The conventional wisdom that offering a quality product is the key to success in the Japanese market only addresses part of the equation. There are cultural values associated with the term "quality" that overseas companies too often overlook.

For example, Japanese corporate customers evaluating new information technology for their operations are often less likely to base their purchase decision on the findings of rigorous quantitative comparisons and benchmarking exercises than their U.S. counterparts. Qualitative factors such as a committed and responsive salesman often represent "quality" far more strikingly than a list of performance measures.

The case of an international women's apparel maker illustrates this point. The products themselves are well-made and stylish. The company had succeeded in stocking their goods in some of Japan's leading department stores. But management recognized that those factors alone were not enough to ensure success. In the fickle market of Japanese fashion, consumers were just as likely to associate a quality image with the products' salespeople as with the products themselves. This manufacturer recruited and trained its own sales force to project the glamorous image it wanted for its products. In effect, it has defined quality in the customers' terms and responded unconventionally to satisfy market demands.

Just as important, this company has established matrices for measuring the costs and performance required to maintain its quality image and is continually improving methods of maintaining its market position on the sales floor.

An integrated approach to continual quality improvement is the only true way of achieving long-term success. That approach begins with focusing relentlessly on listening to and understanding customer requirements. And in Japan, where consumers are shifting their attention toward attaining a higher quality of life and where corporations are increasingly redirecting their strategies from attaining market share to improving profit margins, this requirement for listening and understanding is taking on increasing importance.

Leverage the Work Force

Recruiting a qualified Japanese work force poses one of the hardest challenges facing the company committed to establishing a leadership position. The Japan Times newspaper reports that the country's birthrate fell to a postwar low of 1.53 children per family in 1990 and is projected to drop to 1.35 in 1996. At least one municipal government is offering cash incentives for families to have children -- $120 for the first child, $280 for the second, and $440 plus a four-year college scholarship for the third. Couple that trend with projections that 17% of Japan's population is expected to be 65 or older by the year 2000 and it is easy to understand why some of the fiercest competition among Japanese companies is not for market share but for college graduates.

This competition is driving a number of key industries to look at ways of reengineering their business. Japanese life insurance firms, for example, have traditionally relied on thousands of "field saleswomen" to market their products. But the expense of absorbing a 30% a year turnover among the sales force is hampering profitability and driving the industry to consider fundamental operational improvements.

With industry deregulation on the horizon, many insurance companies are looking toward alternative sales channels, including banks and direct mail, a recent Andersen Consulting survey among Japanese insurers revealed. But the larger firms most often said that the greatest potential for improving sales effectiveness lies in using information systems. And they are not talking about upgrading their mainframes. Insurers will be looking for information technology that can empower a smaller sales force to market new products more efficiently and successfully.

Realign the Organization

A traditional, functional hierarchy will typically be insufficient for producing and delivering the differentiated products and services that are a prerequisite for success in today's Japan. The growing evidence for this claim can be found in an unlikely source: the handful of innovative Japanese companies that are striving to reengineer their own organizations in response to changing market conditions.

It has been commonly reported that Japanese firms are comprised of individual divisions with strict hierarchical reporting relationships. Today, however, we see an emerging trend among Japanese companies to break down the traditional structures that defined their operations. There is more interest in implementing a rotation system to facilitate the movement of employees across divisions. And among some well-known local firms, operations are being realigned from a vertical to a horizontal model.

All too often, however, new entrants find themselves falling into the trap of organizing their Japanese operations along traditional lines that support conventional approaches. Take the renowned Japanese approach to "just-in-time" customer delivery. While overseas competitors are trying to emulate this practice in Japan, some Japanese firms are reevaluating the costs and benefits of this approach. Traffic congestion, the demands of maintaining large fleets of drivers and vehicles and the concomitant costs are an economic burden many companies are now trying to avoid.

The conventional wisdom of trying to emulate Japanese practices needs to be tempered with the recognition that a need for differentiation and shifting economic conditions may well make alternative organizational structures much more effective. It will take nimble, resourceful, and sensitive leadership to strike the right balance.

Exploit Technology Advantages

Information technology can be a powerful force in lowering business process costs, strengthening supply chain linkages, and adding value to products and services, as many North American and European companies have proven in recent years. Herein lies an opportunity for companies seeking new ways of establishing a competitive position in Japan.

Certainly, Japanese companies have had great success in automating manufacturing processes. Yet relatively few have, for example, applied information technology to create new value-added services.

Multinational organizations that are already using information technology strategically may find a real competitive advantage in transferring those practices to Japan. In particular, applying information technology in unconventional ways can help to differentiate new entrants on a basis other than price.

Other companies may need to be more creative. But that does not necessarily imply making huge investments, as one Japanese magazine publisher demonstrated. Their challenge: differentiate their product from among the more than 2,300 magazines published in Japan. As they explain in their trade advertising, "Today's young consumers live rather isolated lives and they are looking for personal advice and guidance from experts and specialists." Telecommunications technology provided a simple solution for standing out from scores of other magazines aimed at affluent consumers in their 20s. A hotline is published on the cover of every issue urging readers to "call our editors directly" to solve their problems.

A Shift Away From Market Share

In their quest for market share dominance, many Japanese organizations have been willing to sacrifice short-term profitability. But with growth rates expected to throttle down over the next five years, that luxury is becoming less affordable. Many firms are expected to shift their strategic focus; greater net income is the new target Japanese companies are aiming for. As a result, the price-cutting that foreign competitors so often complain about may be diminishing in importance as a strategic weapon.

That is not to suggest competing long-term with the Japanese on their home turf on the basis of price; defending a position as the low-cost provider will continue to be difficult. In the short term, however, new economic conditions have created a window of opportunity for satisfying changing buyer values.

We view the underlying fundamentals of the Japanese economy as sound. Japanese companies can be expected to remain formidable competitors. And the barriers to entry will continue to remain high. But we also see economic and demographic factors that will restrain the kind of remarkable growth that characterized Japan in the 1980s. This slowdown will present challenges -- and opportunities -- that overseas entrants and Japanese companies alike will need to address.

In many cases, the managements best suited to lead their enterprises into the Japanese market will be those that have steered successfully through recent times in the U.S. These leaders have come to accept that change is a process, not an event. They have learned to be more flexible and responsive to customer demands. They have succeeded in empowering their work force and streamlining their operations. And they have come to view information technology as a strategic weapon. In short, they have already succeeded in challenging the conventional wisdom and are well positioned to apply that experience in a new competitive frame.

Thomas E. McCarty is the Managing Partner for the Asia-Pacific Region for Andersen Consulting. From a Tokyo base, he directs the activities of consultants in 10 countries. He joined the Arthur Andersen Worldwide Organization in 1968, and was the country Managing Partner for Tokyo from 1986 to 1989 before assuming his current position.
COPYRIGHT 1992 Directors and Boards
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Copyright 1992 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Accessing the Japanese Market
Author:McCarty, Thomas E.
Publication:Directors & Boards
Date:Sep 22, 1992
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