Emerging Market Strategy of Japanese FirmsReshaping the Strategy to Growing Markets

Tomofumi AmanoAssociate Pofessor, University of Tokyo

Manufacturing Management Research Centre （ University of Tokyo ）

“ Centre for empirical study of business management”

Contents

Ⅰ Issues & Ideas in Tapping Emerging MarketsⅡ The Existence of Emerging Market DilemmaⅢ How to Design Emerging Market Strategy(1) Case of 7-11 in China: The Phase of Market Entry

Ⅳ How to Design Emerging Market Strategy(2) Case of Honda Motor Cycle in ASEAN: The Phase of

Market Penetration

Ⅰ　 Issues & Ideas in Tapping Emerging Markets

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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.（２） ROS is increasing especially in Chinese mainland market, compare to the other market.（３） In 1990s, ROS of Chinese mainland was very low, the situation is changed.

Change in Competitive Settings around Japanese Firms

Existing market area developed in the past

Potential market in future

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 don’t know much about emerging market

How to solve their agonies

1. Application of Innovator’s 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

1. Application of Innovator’s Dilemma to EM strategy(Christensen, 1997)

(Source) Yoram Solomon(http://www.videsignline.com/howto/dtv_entertainment/201801779)

Dominant technology

Disruptive Innovation

Disruptive Technology

Over spec.(too much technology)

Existing Market

Emerging Market

• 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 Innovator’s Dilemma(Christensen,1997)

Application of this discussion to the EM strategy

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

　 High

Price

Low

Market size

Quality too low

Low High Quality & Function

Too much Quality

Reasonable Quality

Matrix Created by Shintaku

3. Resource Strategy for Penetrating MOP/BOP market China’s Pyramid

Figure1　 Stakeholders Core　and　Fringe：

Source)Hart　and　Sharma 2004 p.10（ （ ）、

Firm

NGOsCompetitor

Investors

Suppliers

CommunitiesEmployees

Customers

Regulators

"Core Stakeholders"

"Fringe Stakeholders"

Disinterested

Non-Human

Isolated

Non-Legitimate

Adversarial

Divergent

Poor

Weak

Illiterate

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

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

（ Source ） London and Hart, 2004

Ⅱ The Existence of Emerging Market Dilemma: Case of Epson’s Printer Business in Asia

出所）青島・北村「セイコーエプソン株式会社：高精細インクジェットプリンターの開発」一橋大学 21 世紀ＣＯＥプログラムケース研究プロジェクトより引用

・ 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) 　

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• 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, Epson’s Indonesia business has been secured with SIDM. They had 100% share in this segment and they are more profitable.

？

Epson’s Printer Business in Asian Markets 　

18100% share 30% share

• 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.

– Epson’s 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

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• Compatible ink and ink-cartridge business in Indonesia – Oversea Chinese Ink firms in Indonesia

• Putting “big tanks” to Epson’s 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

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• 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 Epson’s 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

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Ⅲ How to Design the Emerging Market Strategy(1)Case of 7-11 in China

～ The Phase of Market Entry ～

（ 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

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 couldn’t

follow the same strategy.– Their challenge is how to differentiate from these local shops by creating

new values.– But they didn’t know how to do it before the market entry.

Market Growth in Beijin-city

Income per capita

Engel indicator

Income Difference of City and Rural in Beijin

• 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

Dominant Location Strategy in 2 areas of Beijing:mixed area of offices, homes and schools

target customer salary is around 500 dollar/month

• 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

Shops of 7-11 （ Beijing ）

People are seeking for lunch near offices They are cooking Chinese dishes in their shops

50% of their sales are from these fast foods Each item reflects the history of local merchandising.30

Local developed products

Private brand products

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

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Optimization of Local Logistics in Beijin-city

• 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 1st 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

Ⅳ How to Design the Emerging Market Strategy(2)Case of Honda Motor Cycle in ASEAN

～ The Phase of Market Penetration ～

Honda Motor Cycle History in Asia

• Honda’s motor cycle was developed in the 1950s. At that moment, motor cycle was highly integral. One best bike with one best engine.

• Honda’s 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

• Honda’s share in China is still below 10%

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Production of Motor Cycles of Japan and China

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 2000

Japan China

出所出所 :　:　 松岡 松岡 (2002),　　　http://www.jama.org/statistics/motorcycle/mc_statistics.htm(2002),　　　http://www.jama.org/statistics/motorcycle/mc_statistics.htmSource from Sugiyama(Kyoto Univ)

Japan

China

Tech. Transfer to Chinese Local Firms Modularization and Rapid Growth

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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

The Situation in Vietnam

Chinese bike similar to Super-cub in Vietnam

• 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 $ 2,000 Around $ 1,000

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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

The same platform to different models by countries(50 models)

①Change the outside design and parts with the same engines and internal parts, ②Change engines as modular parts, ③Change colors and stripes

　 Thailand (1) ASEAN Platform & mechanical

parts development (2) Development of models for Thai

market (3) Product design/development for Indonesia, Vietnam, etc.　

Indonesia (1) Product planning matching Indonesia

market, (2) Metal shape development from design/ development of exterior aspects,

(3) Production of mechanical parts

Vietnam (1) Product planning matching Vietnam market, (2) Metal shape development

from design/ development of exterior aspects, (3) Production of mechanical

parts

Information feedback for mechanical development matching market

Provide mechanical & product design information

Provide mechanical & product design information

Information feedback for mechanical development matching market

The Regional R&D/Production Network in ASEAN Division of R&D and Mass Production in 3 countries

Development is mostly done in ASEAN

Honda’s Low Cost Integral Strategy also Worked in Thailand after the Asian Economic Crisis

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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

出所：天野（ 2007 ）

Introduction of Scooters in Vietnam market. Price is $1,800

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.