Does a Strong Domestic Market Make Japanese Brands Complacent?
Japanese companies are heavily dependent on the domestic market. However, opportunities for growth within the country are limited for many industries given that the population is in decline due to a low birthrate and a rapidly aging society.
The unfortunate reality for Japan is that most companies seem more inclined to compete for domestic market share, even when the overall market is shrinking.
Furthermore, overseas markets continue to be a challenge with a slight majority of Japanese companies’ CFOs responding that they are unsure of Japan’s ability to be globally competitive.
In this article we will discuss complacency as a potential explanation for Japan’s apparent lack of globally competitive companies, considering the country’s strong economic standing. As a counterpoint, we will also look at the activities of some Japanese brands, in various industries, that are currently seeking opportunities beyond the domestic market. By doing so we hope to start a broad discussion about global marketing strategy that we can continue to expand upon in later posts.
Will Strong Domestic Market Further Prolong Japan Inc.’s Push into New Markets?
In the three-month period between May and June of 2017, Japan’s GDP grew at an annualized rate of 4%, representing the largest growth rate in 2 years. Domestic demand proved to the be the primary driver of GDP growth (60% from private consumption alone) as exports contracted during this period.
However, given Japan’s looming population issue – the country is rapidly aging – this strong showing is not necessarily a good thing. In order to maintain its current ranking as the world’s third largest economy Japan cannot rely solely on its own domestic market for growth.
Strategies and countermeasures to adjust to the changing demographics are already beginning to become more prevalent within the Japanese market. Indeed, many companies have started to offer a greater variety of products and services aimed at an older clientele while various industries are beginning to truly feel the impact that a shrinking population is having on their bottom line.
It is not the case that some very intelligent people within both industry and the government did not see this situation coming. It’s simply that the implications of dealing with these issues always brought about tough conversations, such as immigration or industry reform, which decision makers and those who create policy alike did not want to touch.
Acclimation Partly to Blame
Another reason Japanese companies now find themselves scrambling in the face of a shrinking domestic market lies in the ability of people to acclimate. When things get worse gradually we, as human beings, have a tendency to become accustomed to each new “normal.”
This is exactly what prevents people from making the changes necessary to reverse a slow degradation. Additionally, the concept of gaman (我慢), or perseverance, that is deeply imbedded in Japanese culture does not help. Thinking things like “well, it’s not so bad” or “we can make do,” tends to underestimate threats and oftentimes the ability to recover and rebound is compromised due to prolonged decisions.
At the end of the day, however, the biggest issue that needs to be addressed is the continued complacency of Japanese industries. It is the insistence upon maintaining the current status quo, which focuses heavily on the domestic market, that ultimately hinders the country’s ability to be globally competitive. This complacency is evident when looking at Japan’s missed opportunities in the smartphone market.
Strong Domestic Demand Also Partly to Blame: The Galapagos Syndrome
Japan’s traditionally strong domestic demand is one factor that gave rise to the Galapagos Syndrome. The country’s cellular phone market of the late 90s and early 2000s is one of the most cited examples of this phenomenon.
Japanese companies focused most of their efforts on domestic Japanese customers, for the most part ignoring global trends, creating phones with features and services that were unneeded or unusable outside of the country.
As a result, Japanese cellular phone manufacturers missed out on the rise of smartphones since they were so focused on the trajectory their own domestic market was going. By the time Japanese companies realized this blunder, it was already too late.
Ultimately the Strong Domestic Market Has Decreased the Desire Among Japanese Brands to Seek Out Opportunities Abroad
With such strong domestic demand, it is understandable that the majority of Japanese companies’ revenue comes primarily from within their own country: it is infinitely easier to understand the needs of consumers in one’s home country after all. However, as a result of this extreme focus on their own market, as well as lack of executives and managers with global experience, Japanese companies and brands tend to not have the cultural knowledge necessary to succeed in other markets when the time comes to expand internationally.
While Japan does have a few companies with well-developed global brands, such as Toyota and Nintendo, more Japanese consumer companies need to cultivate not only an understanding of overseas markets but also embrace and understand the concept of brand management if they are to be successful overseas.
So What Should Japan Do?
The following examples illustrate Japanese brands in a number of industries that have succeeded in taking concrete steps to improve their global presence. Most of these companies have undertaken more vigorous global expansion and amplification of their global marketing efforts, but we will also introduce an alternative that may be of interest to certain types of SME’s. The common points that these brands share, and what we would ultimately like you to take away from their examples, however, is the strategic targeting of markets with growth potential as well as a strong focus on branding. Both of these elements are imperative to success in overseas markets.
Ryohin Keikaku Co., Ltd., better known as MUJI, is a Japanese retailer famous for their “no-brand” stance towards branding and their minimalistic approach to design. The brand name, MUJI, is a shortened contraction of mujirushi ryōhin (無印良品), which translates as “no-brand, quality goods.” Offering a number of household goods, apparel and other consumer products, MUJI’s aesthetic incorporates natural materials with distinctly Japanese design philosophy that has found popularity among designers and creatives around the world.
Over the past 4 years MUJI has more than doubled its number of overseas stores from 206 to 443 stores. The majority of these stores are in Asia, especially China (200 stores), which is part of the brand’s strategy to focus first on establishing a presence in Asia where demand for its products is exceptionally high. The brand has stated its plans to increase the number of countries it operates in from 24 to 34 in the next couple of years.
Source: Ryohin Keikaku Co. Ltd. 2016 Annual Report
These growing store figures illustrate how the brand is adopting a more global outlook as MUJI will soon have nearly the same amount of stores overseas (443) as in Japan (445). Additionally, the percentage of revenue from overseas operations has risen to 35.5%. When one considers the fact that Japan’s economy makes up for only 8% of global GDP, the necessity of a more proportional revenue from global operations, especially for companies seeking year on year growth, is obvious, yet not all Japanese companies seem to grasp this.
Uniqlo is another Japanese retailer which has greatly expanded global operations, although it has not yet reached the same level of penetration in foreign markets as its competitors in the apparel industry such as H&M and Zara. For example, only last year, in 2016, did the brand release their first major global brand campaign.
Overall, Uniqlo has benefitted from the rise in popularity of fast fashion around the world and the brand has not let the opportunity go to waste. Uniqlo currently has over 1,800 stores in 18 countries and regions with plans to further increase their presence in North America, Europe, and Asia. The percentage of revenue from overseas sales for the company has steadily increased over the past 10+ years and is an extremely positive result given the brands global ambitions.
Source: Fast Retailing 2016 Annual Report
Uniqlo leverages a unique positioning amongst competitors which helps them to stand out. The company has embraced technology’s role in the apparel industry and its technological innovations are a major focus for their brand. Uniqlo’s HEATTECH items are just one example from among their lineup which illustrates their commitment to utilizing innovative fabrics in their clothing.
Retail winners such as MUJI and Uniqlo are successful domestically and have grown overseas, but what about industries that haven’t been performing so well in recent years? Industries with little growth potential domestically may find the best opportunities for their products are abroad.
Food and Beverage: Sake
For some industries, Japan’s demographic issue has exacerbated problems they were already dealing with. Take sake for example. An overall decline in the numbers of people consuming the traditional drink as opposed to other alcoholic beverages is a huge problem for sake brewers and manufacturers. Indeed, the number of breweries has shrunk dramatically with over 3,000 in existence after WWII now reduced to a little above 1,500.
Sake has actually long been suffering from an image problem in Japan. In the domestic Japanese market, sake is considered a drink for old men. This sentiment is common among many younger consumers, especially women. Furthermore, in the overall alcoholic beverage market beer, wine and other spirits have become the preferred drink of choice for many Japanese.
While sake producers have not completely abandoned their efforts in the domestic market – Takara Shuzō has developed a sparkling sake called “Mio” specifically targeting younger female drinkers that has proved popular – faced with declining sales for years, many have come to recognize the limitations of their home market.
At the same time a growing interest in Japanese food and drink abroad has resulted in sake producers working to promote the traditional Japanese alcoholic beverage overseas. This has often taken the form of cooperation with government efforts to promote Japanese food culture as a total package, due to the close association between Japanese cuisine, such as sushi, with sake.
One smaller company which has been successful in individual marketing efforts abroad, however, has been Asahi Shuzō, a sake brewery from Yamaguchi Prefecture in southern Japan behind the popular Dassai (獺祭) brand of sake.
Asahi Shuzō is a great example of simple, yet compelling storytelling coupled with a decisive strategy that has helped it to achieve overseas exports of over 10%.
Asahi Shuzō has succeeded at establishing itself abroad through excellent marketing and branding efforts of its signature sake, Dassai. Although, in Japan the company is not necessarily the most expensive sake or the one with the most expansive lineup, the company only makes one type of sake, daiginjo sake, they have been able to position themselves as a higher quality sake outside of Japan.
Although the decision to focus on only one type of sake, daiginjo, has proved to be a great strategy for Asahi Shuzō, the branding of Dassai is also quite exceptional. First the name itself; In both Japanese and in English it is vivid and memorable. The characters for Dassai literally mean “otter festival,” and is said to be a historical name referring to the prefecture it hails from. Furthermore, the brand’s unique naming convention based on the polishing ratio of rice in each particular variety of sake has made it more accessible for non-Japanese who might be unfamiliar with conventional Japanese designations for the types of sake but can easily understand and recall numbers such as 23, 39, and 50.
In this way Asahi Shuzō is a great example of simple, yet compelling storytelling coupled with a decisive strategy that has helped it to achieve overseas exports of over 10%.
The market for sake outside of Japan still has a great deal of potential for growth and it will be interesting to see how other brands approach the global market given sake’s status as a niche beverage overseas. This brings us to our next topic, which is another approach some Japanese companies may utilize: niche marketing.
The beauty of niche marketing is fully realized on a global scale. Although a given niche’s market may be small within your any one country, the total market around the world may be large.
More importantly what makes niches attractive from a business perspective is the fact that they tend to transcend borders by appealing to consumers and end users who participate or identify with that niche regardless of national origin or culture.
Let’s look at the example of Snow Peak, an outdoor and wilderness gear company.
According to Snow Peak’s company website the idea for the company came about when its Japanese founder grew dissatisfied with the quality of the products available on the market at the time. The solution Snow Peaks’ founder came to was to make his own products.
From this beginning, the brand grew fairly organically among those involved in the hobby and to this day the privately held brand does not engage in traditional advertising, instead relying mostly on word of mouth. Although people are probably familiar with brands such as The North Face or Coleman, many brands within the outdoors and wilderness gear niche are practically unknown to those outside of the hobby, which is why Snow Peak would still be considered a niche brand. Yet despite its relatively small size, the company is able to sell products all around the world.
In niche markets this is not uncommon, though, as what is most important is the dedication the brand has towards the greater lifestyle or shared culture it is a part of. This enables them to produce products people from all over the world will want, and will inevitably seek out for themselves through personal connections or their own research. What Snow Peak’s example helps prove is that for companies in niche interests and hobbies, even small brands can operate globally.
Issues Moving Forward
In this article we have discussed the fact that compared with other countries’ brands, the majority of Japanese brands’ revenue comes primarily from within their own market. We have also discussed how as a result of this focus on their own market, Japanese companies tend not to have the knowledge necessary to operate independently in other markets.
Some might argue that brands which have a strong connection to distinctly Japanese lifestyles are often those who will face the most difficulty in taking their product or service overseas. However, this is not an insurmountable obstacle, especially when you hear stories of brands like Kikkoman, best known as makers of soy sauce, who now have half of their operating profit coming from overseas.
Similarly, Japanese food manufacturers such as Nissin and Ajinomoto, famous for instant noodles and seasonings respectively, have set their sights on developing economies within Africa and South America and are actively developing products specifically for these markets. (Note: product development is a topic which we did not specifically touch upon in this article but it can also be considered a part of a brand’s overall strategy).
While well-known Japanese automotive and electronics companies were able to establish overseas presence during the Postwar period when Japan was a manufacturing country and its economy mainly export driven, nowadays things are different.
For most Japanese companies seeking growth overseas, marketing and branding will become critical elements to their global strategy.
Although many of Japan’s industries have long focused on their home market, in the coming years we should expect to see more Japanese companies, including SME’s, start stepping up their overseas efforts in response to the shrinking domestic market.