Toy "R" Us

To those of you who are interested in Global Marketing, you might find this interesting, like me =)

Toys “R” Us – Case Study

1. Was Japan an attractive market for Toys “R” Us? Do you think there were any cultural obstacles to product acceptance? Strong competitors?

a. The Japanese market is an attractive markets for Toys “R” Us because it is ranked one of the 3 largest and wealthiest markets in the world (besides United States and Europe) of leisure goods.
b. The establishment of McDonald in Japan had provided a joint-venture opportunity to ease the entry.
c. One of the cultural obstacles is that companies usually do not employ more than 50 employees in retail store regardless about its size.
d. Strong competitors basically are those small specialty stores and general retailers since they occupy the largest portion of sales in Japan.

2. What were the entry barriers into Japan? Any culturally based barriers. In terms of how to do business?

a. Japanese toy retail was dominated by small specialty stores and general retailers. Large toy retailers in Japan make much lesser sales than small specialty stores. Japanese culture is different in the sense that they tend to be more loyalty towards the stores that they have visited and feel reluctant to change. There are more small specialty stores and general retailers around the neighborhood; therefore it is likely that they have generated their loyalty towards the stores.
b. Japanese’s wholesalers dealt almost exclusively in Japanese-made products. They do not specifically deal on foreign products.
c. Japanese usually do not employ more than 50 people in the retail, unlike Toys “R” Us.
d. They have high purchasing power parity; they are motivated by quality instead of low prices. They have a preference for established brand name merchandise over lesser-known goods. Everyday low price strategy does not work well in Japan.
e. It is hard to get the empty space that it needed to open such a huge store.
f. There are statements which major Japanese manufacturers would not be willing to enter into direct deals with Toys “R” Us due to their traditional way of making trades.
g. Sensitive Japanese consumers make the tools of Toys “R” Us company specific advantages (everyday low price and a large selection of products) tough.
h. It has huge product line depth. However, the Japanese are not interested in going into a giant store that has everything.
i. They expected exceptional customer service. Most of the employees in Toys “R” Us United States are usually less permanent than any of the Japanese toy retail which makes them to a have higher turn-over. This will then require them to retrain new employees which have lesser knowledge on the Toys “R” Us products.
j. Japanese companies usually do not fire their employees. Indirectly, this makes them having more loyalty towards their own company and also having in-depth knowledge of the products on the shelf.
k. It is not easy to get suppliers in Japan given that they will to need to go through a lot of layers of distribution.

3. How did Toys “R” Us manage to cross the entry barriers into Japan? What alternative modes of entry could have been tried?

a. Firstly, Toys “R” Us joint-alliance with McDonald’s Japan. This joint-venture with McDonald has eased the market entry like segmentation of the market, for instance, like utilizing McDonald young families and children network.
b. Secondly, there were no permanent foreign employees at the head quarters. This full utilization of Japanese employees had directly eased the management of all departments within the company.
c. Its excellent marketing strategy and experience in cracking foreign markets together with McDonald’s depth of market knowledge and research skills and communication lines to the target groups of children and young families, it makes the entry much easier.
d. The timing that Toys “R” Us came into Japan was good because Japan was in recession. Therefore, its Everyday Low Prices do work on the Japanese consumers.
e. Another well timed incident is that Japanese government waived the law which the existing retailers could veto the entry of a large retail like Toys “R” Us into the area; this eased the entry of Toys “R” Us.
f. The category killer which offers 18,000 items in the first store creates an overwhelming advantage towards its competitors from opening opposing stores. (Competitive advantage of the store)
g. Even though the high cost of land, they still able to provide more than adequate of parking for its consumers to create convenience.
h. In terms of advertisement, they used the colorful inserts in newspapers rather than television or radio for 2 reasons. It is cheaper and it is better reaching its target audience.
i. Another alternative used in advertising was to localize the ads as there are not many stores around so television advertising will not be too valuable in this case.
j. Direct exporting all goods from Toys “R” Us Japan is not going to work well due to the high shipping cost.
k. Foreign direct investment is not going to work well due to the Japanese culture. Any foreign company is best to fully utilize Japanese employees to eliminate high cultural barrier in Japan.
l. As for franchising, most franchisees do not work well in Japan due to different wage policy and working condition. Japanese workers are accustomed to full-time and lifelong employment which they receive adequate wage. The concept of part-time of United States had puzzled the Japanese.

4. What were the problems in transferring the Toys “R” Us competitive advantages to a foreign market? What did Toys “R” Us internalize the firm-specific advantages rather than license another retailer abroad?

a. One of the Toys “R” Us competitive advantages is its lower prices than its competitors. The problem of transferring this advantage to a foreign market is its country purchasing power. A high purchasing power parity country like Japan would not respond well to it as they might relate low price to low quality. In these countries, they are more brand-conscious and they are unlikely to purchase low price products.
b. Another competitive advantage of Toys “R” Us is that they have everything that a toy fan wants in their large retail store. Its problem in transferring this to a foreign country is about its culture. Not every culture is amazed of the huge product selection from the store; certainly, it is not what Japanese are looking for.
c. Toys “R” Us internalized firm specific advantages rather than licensing abroad because the establishment of McDonald could enhance its advantages like its everyday low prices and huge product selection. With McDonald’s young family and children network, it does not need to spend extra cost in market research.
d. Also, with the use of the McDonald’s Japanese management style, Toys “R” Us does not need to invest time in training new employees and analyzing Japanese style of management.
e. If Toys “R” Us franchises abroad in Japan would drive up the cost of adapting to the market significantly. It needs to start its marketing research from scratch.
f. Another reason why it should not franchise abroad is due to cultural barrier. Apparently the Japanese do not require tell them how to do business; they would like to do it in their own way, which might not be the desired way that Toy “R” Us wants.
g. Further, they are worried that rapid Japanese change may take place. This rapid change might require constant monitoring at the store itself to prevent downfall in sales of toys.

5. Given Wal-Mart’s threat in the US Market, what should Toys “R” Us future strategy in Japan be?

a. Speaking in terms of profit, Toys “R” Us future strategy shall not exclude both US market and Japanese market. They are both well developed market and since they have already established in those market, they should be innovative to find ways to survive.
b. If Toys “R” Us were to focus on Japanese market, they should take the advantage that Wal-Mart has not been established. They should strengthen their market in Japan given the help from Mc Donald. Continue working with Mc Donald like establishing better network since both of them compliment the target market. For instance, after a long walk shopping in Toys “R” Us, they could go for nearby Mc Donald.
c. On the other hand, Toys “R” Us could also import some of the Japanese toys back and sell it in US. This advantage could not be mimicked by Wal-Mart because they could not simply sign a contract with the Japanese and get the same toys but cheaper price than Toys “R” Us. It will be too costly for Wal-Mart to do that.
d. Toys “R” Us has the first-hand items, Wal-Mart has only a portion of their products.
e. Judging from the high entry barrier to the Japanese market, Wal-Mart could not penetrate it easily. Without joint-venture, simply licensing to the Japanese local is not going to work as mentioned earlier. Further, Wal-Mart everyday low prices and its huge store will simply annoy the Japanese. As much as Wal-Mart would like to, they are going to suffer a major cost and the establishment does not guarantee that they could survive in this market.