PMBA 6014A Organizational Behaviour Toys Us Japan

Presentation

Agenda
Whos Toy Us (TU)? TUs business model Retail industry model in Japan Opportunities and Challenges for TU Underlying Issues and Goal of TU Benefits and problems that TU would face when enter into the Japanese market: US mode Japanese mode Discussion questions Anchor Recommendations

Who is Toys Us?

A toys retailer in self service and supermarket style format Key milestones: 1957: Founded in USA 1984: Open the first international outlet in Canada 1988: Captured 20% of the US toy market 1990: Apply to open the 1st TU in Japan 1991: Operating 97 overseas stores in 8 territories (contributed 14% of total sales)

TUs Business Model

Large Stores in low rent area Encourage full year purchase via year round advertising Core Competencies: offers wider selection than competitors Direct purchase from manufacturers and offer toys at lower price Centralization (i.e. No decision are made in the field) Ensuring replacement of inventories Knowing the customers preferences

Retail Industry Model in Japan

Fragmented and retailers and wholesalers Small and large nos. of toy stores Complex and hierarchical distribution system 3- 5 layers of intermediaries. Almost all retail stores buy toys from local wholesalers Only 9% toys are imported Manufacturers determine retail price Similar merchandise among stores

Comparison: Japan vs. US

Japan Highly fragmented Locally-focused Suggested-price Small-scale stores Slow inventories turnover Small volume purchase Sentimental

US Direct distribution layers Global vision Price competition Large-scale stores

High inventories turnover Large volume purchase Low price strategy

Opportunities for TU to Enter into Japan Retail Market

2nd largest toy market in the world

Annual retail sales grew 94% in 80s Boom in GDP during 1980s Falling birth rate Parents more willing to spend more on toys

No similar competitors Same retail price for all shops

By undercutting "suggested price" could capture the discount market

Proposal of law relaxation

TUs Challenges (1)

Business Model Price and supply of goods controlled by manufacturers Lack of relationship/ experience in local market High land price and difficult to find suitable shops Difficult to find suitable staff

TUs Challenges (2)

Cultural Value Japanese is emotionally attached to their tiny shops Social value: Centers of village Nation of small shopkeepers mom and pop Shop everyday for small quantities of fresh goods Japanese is willing to pay more for better service and emotion value by these small shops

TUs Challenges (3)

Legal Regulations Very stringent screening process for stores over 16,000 sq. ft. Literally require local retailers consent Protect small stores Tacit non-competition arrangements

Underlying Issues

Should TU enter Japan based on its original organizational model ?

OR

Should TU enter Japan by adapting to the Japanese way of doing business? i.e. Change or No Change ?

What is TUs Goal?

Extremely straight forward and not rocket science: Simply go globalization and make more profits!!!

If TU enter Japan by adapting to the Japanese way of business (1)

Position :
Differential product / services TU TU

TU

Comp -etitor

Japan Toy Retail Market

Comp -etitor Comp -etitor

If TU enter Japan by adapting to the Japanese way of business (2)

Challenges : Due to the same retail price set by the manufacturers, to survive, TU must deliver differential products/ better services to customers Highly competitive environment as these shops are currently providing high quality services and similar products. A big change in the organization model to adapt the market the objectives, structure, organization culture, etc.

If TU enter Japan by adapting to the Japanese way of business (3)

Benefits : Good Start : Better relationship with manufacturers/ wholesalers Possibly able to have stable supply of local products and pass through legal restrictions Good Start : Get recognition from customers

If TU enter Japan based on its original organizational model (1) Position :

Japan Toy Retail Market Influence TU

If TU enter Japan based on its original organizational model (2)

Challenges: Impair the interests of retailers / wholesalers / manufacturers in Japan Manufacturers and wholesalers may not supply local toys Unable to find suitable shops Could not find suitable employees Interrupt the established system of business, which is difficult to change Educate customers, change customers behaviour

If TU enter Japan based on its original organizational model (3)

Benefits: Retain TUs organization model and core competencies which draw more profit Supports from customers by delivering : Lower price products Wider range of goods sold at one stop

Discussion Change or Not Change?

Why 7-eleven is successful in Japan? Organizational model is adaptable in Japanese model of retail business Only minor modification of its organization structure is required without destroying its core competencies But could TU do so and, if affirmative, how much change of its organization structure is required?

Consideration One

Culture in that country. The country you are entering What if you are TU and you are entering Canada instead of Japan? Would the challenge as well as the decision be different? Employees in different cultures behave and react differently to various scenarios:

The US vs Canada vs Japan

Country Power Distance 38 39 33

Individual vs Collective 1 4 22

Masculine vs Feminine 15 24 1

Uncertainty Avoidance 43 41 7

Long-term vs Shortterm 27 30 4

US Canada Japan

Source: Geert Hofstede BV, summarized from Organizational Behaviour, Robbins/Judge, p 126-127, 2007

What are the key observations? As TU entering Japan, does it have to amend its organization structure to meet local culture? It depends!!!

Consideration Two

Local business practice/ protocol How does the Japanese toy business supply chain affect organization structure?

The Japan Toy Supply Chain

Toy Manufacturer Master Distributor

Regional Distributor

Wholesaler

Apart from making the end user to pay more How would Toys Us have to modify its organization to support this?

Retailer Consumer

TU Supply Chain, with Suggested Vendor Organizational Support

Toy Manufacturer Vendor Account Manager

Toys Us Consumer

TUs supply chain in other countries probably only needs a couple of people in a single account to manage the entire distribution relationship

The Japan Toy Supply Chain

Toy Manufacturer Master Distributor Regional Distributor Wholesaler Toys Us Consumer Vendor Account Manager Master Distributor Manager Regional Distribution Manager Wholesale Distribution Manager

Due to various reasons, e.g. facilitating the manufacturer to control retail price, additional organizational units are required to support business in Japan. Does this make sense?

The Efficient Organization

Which business model, the TUs existing or Japan toy industry model is more efficient? Maybe the concept of satisficing would suit TU what is it? Combination of suffice and satisfy A good enough solution Adequately addresses issue, but not necessarily being the most efficient

Consideration Three

Market Power Lets consider one last feature, which would inevitably influence the decision: Entry firms perceived market power (i.e. size of the business or how powerful / influential the company is)

A Wise approach?

Has everyone heard of Wise Kids in Hong Kong before? Lets assume the case is about Wise Kids entering the Japanese market How many locations in HK? 5 stores Revenues? We could agree that they probably had less revenue than the US$5.5B in sales in 2001 that TU did.

Wise Kids (1)

If Wise Kids said I dont agree with the Japanese distribution model for toys, and I want to do business completely direct with manufacturer. How would Japanese manufacturers respond?

Wise Kids (2)

What do you think? Wise Kids cannot change market behaviour Because they are too small But what about TU? Wise Kids cannot change market behaviour Because they are too small

Formulation of Anchor (1)

What is TUs business strategy/ core competencies? Buying and selling a large selection of toys, direct from the manufacturer, at low cost If TU elects to adopt the Japanese model, and builds out a multilayered account management organization to support this? Does TU keep its competitive advantage in Japan?

Formulation of Anchor (2)

The answer is probably NO. TUs core competencies would be destroyed, as its costs would be driven up significantly Therefore it cannot change its organizational structure completely But if TU completely adopts its standardized US model without modification?

Formulation of Anchor (3)

The answer is probably NO. TU would face strong opposition from the manufacturers/ wholesalers, retailers TU would not know the local needs, e.g. where to set up the shops and what are the popular products/ services of the local. Therefore it cannot maintain its organizational structure completely Similar to Panasonic/ Philips case?

Anchor
TU Japan is not merely required to (1) suitably standardize its organization structure as the parent organization in order to maintain the core competencies, but also to (2) adequately localize organization structure in order to meet the local needs and face less oppositions

Follow through the Anchor

The degree of adaption is a key determinant

As TU has influential power, their core competencies can be maintained by only slight adjustment of their organizational model The adjustment should be coherent with local partners and meet the local needs

Recommendation 1 - Avoid Cultural Misfit

Cultural Values Strategic partnership with local company Empowered management decision at country level (i.e. Decentralization), management formed by local staff to foster cultural fit SBU by country Formal organization structure (high power distance) Training for US managers on cultural difference (example: listening skills, voice and tone, underline meanings of words)

Recommendation 2 - Local Practice

Hybrid approach organizational design Maintain TUs core competencies (range, low price, cost) Category managers team to deal with major distributors and also manufacturers Form strategic retailer supplier relationship to turn local opposition to support (example: 7-Eleven in Japan)

Recommendation 3 Organization Power

Organization in wider context Ride on MITIs vision, work with US Government to move forward with Japan (not invade Japan) Incorporate social community into the organization (aged workers, female workforce)

Recommendation 4 Critical Mass

Locally large enough to provide wide variety of goods Attract customers arcade owners will be willing to lease the shop More people would be willing to join More manufacturers/ wholesalers would be willing to sell Large overseas chain stores network Promotion of Japanese goods in foreign TU chain stores in exchange for supply of goods.