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Emerging Market Strategy of Japanese Firms Reshaping the Strategy to Growing Markets Tomofumi Amano Associate Pofessor, University of Tokyo.

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Presentation on theme: "Emerging Market Strategy of Japanese Firms Reshaping the Strategy to Growing Markets Tomofumi Amano Associate Pofessor, University of Tokyo."— Presentation transcript:

1 Emerging Market Strategy of Japanese Firms Reshaping the Strategy to Growing Markets Tomofumi Amano Associate Pofessor, University of Tokyo

2 Manufacturing Management Research Centre University of Tokyo Centre for empirical study of business management

3 Contents Issues & Ideas in Tapping Emerging Markets The Existence of Emerging Market Dilemma How to Design Emerging Market Strategy(1) Case of 7-11 in China: The Phase of Market Entry How to Design Emerging Market Strategy(2) Case of Honda Motor Cycle in ASEAN: The Phase of Market Penetration

4 Issues & Ideas in Tapping Emerging Markets

5 Source World Bank Japanese Cabinet Office

6 Recent Performance of Japanese Subsidiaries 1 The sales portion of Asia has been increasing than other regions, partly due to the sales growth in Chinese market. ROS is increasing especially in Chinese mainland market, compare to the other market. In 1990s, ROS of Chinese mainland was very low, the situation is changed.

7 Change in Competitive Settings around Japanese Firms Existing market area developed in the past Potential market in future

8 Agonies of Japanese Managers (Source) Horioka in ETP, University of Tokyo We have firstly developed cutting edge technologies, but soon been caught up by following competitors. Technology is easily spilled over to catching-up countries Our products are too expensive and too much qualities in developing countries, but we cannot change the quality standard We dont know much about emerging market

9 How to solve their agonies 1.Application of Innovators Dilemma framework to the Emerging Market Entries 2.Selection of Quality/Function/Price (QFP) Portfolio to the Emerging Markets 3.Resource Strategy for Penetrating the MOP/BOP markets

10 1. Application of Innovators Dilemma to EM strategy (Christensen, 1997) (Source) Yoram Solomon( Dominant technology Disruptive Innovation Disruptive Technology Over spec.(too much technology) Existing Market Emerging Market

11 Complete power-shift to the unit with disruptive technologies (Spin- off, Power-transition in main-stream) Matching the organization scale to the market scale (Small organization to the small market, small success with experience) Promoting exploratory activities around disruptive technologies (Plan to learn rather than learn to execute!) Matching the market demand and technology/specification level(Change the product specification to the market level) Four Solutions to Innovators Dilemma(Christensen,1997) Application of this discussion to the EM strategy

12 2. Selection of Quality/Function/Price (QFP) Portfolio to the Emerging Markets (Shintaku, 2009) Matrix Created by Shintaku

13 3. Resource Strategy for Penetrating MOP/BOP market Chinas Pyramid

14 Change the Concept of Resource for MOP/BOP market (Hart and Sharma, 2004)

15 A New View of Resource in EM Strategy (London and Hart, 2004) Source London and Hart, 2004

16 The Existence of Emerging Market Dilemma : Case of Epsons Printer Business in Asia

17 21 In Japan and U.S., printer business shifted from SIDM to Ink-jet in the later 1980s SIDM became saturated but many innovations in Ink-jet printers occurred in the 1990s Ink-jet printer provided new Supply Business Model earning profits from ink cartridges, not from hard wares. Introduction of SIDM series in 1980s Introduction of Ink-jet Printer series in 1990s Business Shift from SIDM to Ink-Jet Printer in Japan(1980s) 17

18 Printer Business in Indonesia – Epson exported printers to Indonesia markets through local importers since the 1990s. At that time, SIDM was main product. – They established local sales office in 2001 and started to sell Ink-jet printers in 2001. – But Ink-jet printer was very competitive business. Even though they created 30% market share, profit was very low. (Other 70% is Cannon and HP) – Instead, Epsons Indonesia business has been secured with SIDM. They had 100% share in this segment and they are more profitable. Epsons Printer Business in Asian Markets 18 100% share 30% share

19 Why SIDM in Indonesia – SIDM is mostly business used (receipt printing, printing banking notes etc), and became a standard in those usage. – Due to the heavy usage, durability of products (hard to be broken) is required to SIDM – Hardware price is 600 US dollar, but ink- cartridge is 10 dollar. – Epsons service support of SIDM is very good Why not Ink-jet printers? – In Japan Ink-jet is home-used. That is why ink usage is small and no necessity for cheap compatible ink cartridges. – In Indonesia Ink-jet printers are also business used. They are heavily used. That is why running cost of ink cartridge is quite essential. – Hardware price is 250 US dollars, but ink cartridge is 25 dollar 19

20 Compatible ink and ink-cartridge business in Indonesia – Oversea Chinese Ink firms in Indonesia Putting big tanks to Epsons printers informally Injecting cheap ink to the cartridges informally Earnings with supply business was destroyed in Indonesia It is OK in developed countries, but need to be changed in Asian markets 20

21 Creating Local Capacity in SIDM Business (Side Effects of SIDM) – Local after-service network 6 service centers and 48 service shops in Indonesia Service is free to Epsons cartridge users, in charge to local cartridge users. Heavy users need heavy after-service, which creates high product values. – 4 distributors and 1000 local dealers from local entrepreneurs Healthy competition between 4 distributors. Collaborative culture with local young entrepreneurs. – Good effects also on Ink-jet business 21

22 How to Design the Emerging Market Strategy(1) Case of 7-11 in China The Phase of Market Entry

23 1 Intensive market experiment and local business creation to establish and standardize the profitable business model to MOP/BOP market 2 Changing Quality/Function/Price(QFP) portfolio to the selected markets 3 Changing the resource and business system fitting to high- volume MOP markets with local capacities Three minimum requirements for penetrating MOP/BOP markets

24 Localization of Merchandizing Policy in 7-11 Retail business is very local: Merchandizing Policy needs to be very localized. That is why foreign firms are generally difficult. 7-11 entered China market successfully. How? The situation when they entered China market – Daily commodities are sold cheaply in many local shops and 7-11 couldnt follow the same strategy. – Their challenge is how to differentiate from these local shops by creating new values. – But they didnt know how to do it before the market entry.

25 Market Growth in Beijin-city Income per capita Engel indicator

26 Income Difference of City and Rural in Beijin

27 Local Responsibility for Local Merchandizing – While their brand, basic management policy, and information systems are from Japan, location strategy, design of shops, product development, sourcing, logistics, and pricing are decided on the side of local headquarter. – A franchiser Japan headquarter gives full responsibility of these MC management to local franchisee China headquarter. How to create local merchandising capabilities below

28 Dominant Location Strategy in 2 areas of Beijing: mixed area of offices, homes and schools target customer salary is around 500 dollar/month

29 After Seven year merchandizing experiments, they standardized their local business model – They were seeking for the way of adding value in their shops. Several merchandizing ideas and know-how are produced from this experimentation – Several models: They are serving hot Chinese dishes cooked on site. They set even cooking counters in their shops. Recipes are standardized and changed weekly In China rice is steamed not boiled. 7-11 introduced the way of boiling the rice and made contract with local factory. They are making rice-balls from boiled rice In China there is no customs to eat raw vegetables. 7-11 introduced raw vegetable salads co-developed with local clean farmers. They created high values in direct shops and try to utilize these know-how in franchise system in the next stage. They changed (modernized) the relationship with local suppliers (transaction, pricing, logistics and so on) Intensive market experiment and business development for local standardized model

30 Shops of 7-11 Beijing People are seeking for lunch near officesThey are cooking Chinese dishes in their shops 50% of their sales are from these fast foodsEach item reflects the history of local merchandising. 30

31 Local developed products Private brand products

32 The other successful case in Ito-Yokado Beijing and Chendu They changed the positioning strategy as department stores, instead of GMS They are inviting Taiwan and Hong Kong tenants, instead of European luxurious tenants Organic vegetables are expensive but sold well (price is 3 times) They are buying local products as much as possible The floor is full of customers in Ito-Yokado, Chendu 32

33 Optimization of Local Logistics in Beijin-city

34 7-11 and Yokado developed human resource through OJT. 7-11 allocate good performers at the position of store managers who plan the merchandising in 5 to 6 direct/franchise shops, then best performers are promoted to the position of buyers Ito-yokado put the 1 st store as training centre of managers to other stores. Good performers are also promoted to buyers after 5 years OJT. Slow but dense communication to local managers. Good local managers teach local employees Human Resource Development and Selection of Buyers

35 How to Design the Emerging Market Strategy(2) Case of Honda Motor Cycle in ASEAN The Phase of Market Penetration

36 Honda Motor Cycle History in Asia Hondas motor cycle was developed in the 1950s. At that moment, motor cycle was highly integral. One best bike with one best engine. Hondas super-cubs took over 60% of low-middle market of motor cycles. But in the 1980s, Honda committed to technology license with Chinese local firms. They successfully manufactured the copy-bikes. Through the technology transfer, Chinese firms change its product architecture from integral to modular ones. They can assemble motor cycles with copied modular components Hondas share in China is still below 10% 36

37 Production of Motor Cycles of Japan and China : (2002), : (2002), Source from Sugiyama(Kyoto Univ) Japan China Tech. Transfer to Chinese Local FirmsModularization and Rapid Growth 37

38 How to Compete with Chinese Motor Cycles in ASEAN The Battle in Vietnam – Before 2000, Honda had a dominant position in ASEAN market, including 50% share in Vietnam and other countries. – They were manufacturing and exporting high-end super-cab in this market with high profit and small volume. – Around 2000, Chinese low price motorcycles were imported to Vietnam market under the condition of over-supply of products in Chinese market Before then Honda had very small market share in China in competition with Chinese low price products. – In Vietnam market, the sales volume of Chinese motorcycles has increased rapidly since 2000 and the market share of Honda has decreased – Honda was fearful for the risk of losing their market share

39 The Situation in Vietnam Chinese bike similar to Super-cub in Vietnam

40 Response to the Market Competition in Vietnam – In January 2002, Honda started selling its $1,090 Wave α. Launching this product suddenly shrunk the price gap with Chinese motorcycles. – They reviewed design standard, used low cost parts including Chinese parts, reducing over-spec quality to the acceptable one. – The decision was authorized by the top management of Japanese headquarter and it influenced on the total product strategy in ASEAN market Around $ 2,000Around $ 1,000

41 41 Low cost integral model and strategy of product architecture Internal standardization and external adaptation to local markets Engine and central mechanical parts are standardized in different models in ASEAN. Firm can enjoy the economic benefit from R&D concentration and mass production. The life of these parts is 10-15 years. Outside parts are affected by product designs, which are different country by country. Major model change is per 4 years and minor one is every year. Firms are decentralizing the design, die-making and production of these parts within each local market. Local procurement percentage of motorcycle in Vietnam

42 The same platform to different models by countries(50 models) Change the outside design and parts with the same engines and internal parts, Change engines as modular parts, Change colors and stripes

43 The Regional R&D/Production Network in ASEAN Division of R&D and Mass Production in 3 countries Development is mostly done in ASEAN

44 Hondas Low Cost Integral Strategy also Worked in Thailand after the Asian Economic Crisis

45 45 1. New market of scooters with CVT Continuously Variable Transmission in the city market 2.Honda and Yamaha introduced new models of scooter in the city market. 3. The time comes when value added more than basic functions is necessary Recent Market Change for New Values in ASEAN 2007 Introduction of Scooters in Vietnam market. Price is $1,800

46 Final remarks We need the model of foreign market entry with some discontinuous/disruptive condition of technology, market and resource, which is not captured by conventional IB literatures. Here is the area where the new concepts and logics are necessary to deal with the real strategic leap. This presentation take the issue from the aspect of quality selection and resource strategy. Accumulation of case study is the first step, then some statistical works are also expected in this research areas. International comparison is also a good approach.

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