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Essay on Western Company Entering an Eastern Market like Boots PLC

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ABSTRACT

The following is a case study undertaken on the entry of Boots plc in the Japanese beauty and health retail segment. Although the company had invested a serious amount of effort, money and work in this new global venture, it finally backfired in the year 2001. Boots plc had to withdraw itself from the Japanese market. The company had undertaken a three-year exercise to understand the intricacies of the Japanese retail segment. Their route to entry was through a safe way of joining hands with a local company - Mitsubishi. The idea was to rope in local knowledge and expertise given the stark differences in the Japanese and Britain market segments. The mistake in retrospect could have been the partnership with Mitsubishi which is a strong partner hailing from Japan, but their business profile comprises a broad range of products. Their business consists of energy, metals, machinery, chemicals and living essentials. The company also provides services in the areas information, finance, logistics and trade and other projects. The other factors, which could have led to the failure of this joint venture, could be the lack of understanding about the Japanese market and consumer purchasing power and behaviour. The economy has only revived in the recent times; the consumers are not willing to experiment with their money. A detailed PEST analysis of Japan along with a SWOT of Boots plc has been conducted to help show what went wrong. All companies when entering global markets need to undergo a process of understanding whilst detailing the requirements and risks involved. Boots plc did undertake all this effort and yet failed to impress the Japanese consumers. This could be due to the strong presence of local competition as well as many multinationals brands in the health and beauty segment.

INTRODUCTION

The advent of globalization and technology are making the world a much smaller place. The markets are shrinking; the EU is an example of what might come in the following years. All of the European Union a single market with a single currency, trade and business between the member countries is not restricted unlike that between the East and the West. The West and the East are still considered very diverse from each other; the differences lie in the way one conducts business, trade to the people's culture, value and beliefs. Despite this, companies are now moving between continents to gain profits from new global ventures as well as to avoid saturating their domestic markets. The case of Boots plc moving to Japan with the help of a joint venture with Mitsubishi Corporation is similar to this situation. There are advantages and disadvantages of moving globally and at the same time there are many factors to be considered before making such a move. This involves understanding the market segment, competition, consumer behaviour, government rules and regulations, technological and social background. All of this is actually the external environment, which will either propel or halt the growth of business and so significant consideration needs to be given to each. Despite this, businesses might fail and so there needs to be a contingency plan covering the financial risk involved. Boots plc failed miserably in the Japanese health and beauty retail segment. Through this paper we will gain an understanding about global markets, entering them, importance of pest analysis (external environment), swot analysis (internal environment of the company) and marketing issues in global markets.

FACTORS IN INTERNATIONAL MARKETS

The advent of information technology, faster communication, easier modes of transportation are shrinking the market place and making it smaller. The better way to compete is to continuously improve products at home and expand into foreign markets. Companies need to be more careful while entering foreign markets as the risks are higher, foreign debt, unstable governments, tariffs, international trade barriers, corruption and technological pirating. "A global industry is an industry in which the strategic positions of competitors in major geographic or national markets are fundamentally affected by their overall global positions." [Kotler Philip (2003), p 384]

The company needs to consider which market or markets would they want to enter. Most companies would like to explore opportunities with the neighboring countries since it's easier to understand the socio-economic status and cost control becomes easier. On a more generic note, companies prefer to enter global markets which a) offer low market risk b) high return on investment c) platform for sustainable competitive advantage d) high market attractiveness e) stable social, political and economic environment e) High base of target consumers/customers.

Once the process of short listing a geographic location is determined, it would help to conduct a Pestle analysis of the country to determine factors like Political, Legislative, economic, social, technological. All these when combined would present a fairer picture of what this market segment entails. This would also let the company decide on the best way to enter the market. There are five main strategies involved, which include - Indirect and direct export, licensing, joint ventures, direct investment and internationalization process.

BOOTS PLC AND THEIR MARKET ENTRY DECISION

The first Boots store was inaugurated on the 30th July 1999 in the Omotesando area of Tokyo in the presence of Boots chairman, Lord Blyth of Rowington; Mitsubishi Corporation chairman, Mr Minoru Makihara; and the British Ambassador to Japan, Mr Stephen Gommersall. This initiative was part of a joint venture undertaken between Boots and Mitsubishi to try and capture some of Japan's health and beauty retail segment. Although this was the trial period, the management decided to test it with four pilot stores in tokyo. The size of these stores was estimated at 400 sqm and in prime retail locations. The format of the stores closely resembled what one would see in UK - a combination of over the counter medicines, fragrances, cosmetics, Boots own brand No.7 and toiletries. Boots has also taken the initiative to reformulate and register over 2000 of its own brands fro further sale in the Japanese retail market. Lord Blyth's comments on the first store in Japan was "Japan represents an enormous opportunity for Boots. We have spent over three years preparing to enter this market and have found an excellent partner, Mitsubishi Corporation. In recent years we have demonstrated the strength of the Boots brand and our ability to take our retail format successfully into new countries. We look forward to similar success in this exciting new venture." [http://www.boots-plc.com/news/default.asp?NID=11]

Further commenting on the partnership with Mitsubishi on this venture, Boots Plc chairman, Lord Blyth of Rowington said "Japan's health and beauty market represents an enormous opportunity and finding the right partner was vital. The Mitsubishi Corporation will be fully involved in the management of the joint company and contribute its high quality people, in addition to its local knowledge of markets, property and logistics. There will be a full evaluation of the pilot stores but both companies believe there could be potential for around 400 Boots stores across the country in the long term."

The other party in this joint venture, Mitsubishi Corporation president, Mikio Sasaki, said "Retailing is one of the major business sectors for the next century. We strongly believe that a partnership between Mitsubishi Corporation and The Boots Company, a world renowned company for its tradition in quality and service, will provide an excellent opportunity for both sides in expanding business possibilities in Japan's huge health and beauty retail market." [http://www.boots-plc.com/news/default.asp?NID=24]

REASONS FOR FAILURE IN JAPAN

All these efforts, which went into entering the Japanese retail market was a disaster and in the year 2001, Boots plc, withdrew all presence. There are reasons for this failure, though Boots did spend a reasonable amount of time before deciding on entering Japan through a joint venture with a local company - Mitsubishi. The reasons for entering into a partnership with Mitsubishi supported the doctrine of having local support, business knowledge, and expertise in foreign markets. All this did not account for the complex Japanese retail market.

Though Japan is the second biggest economy in the world, the retail environment in the country is not a very receptive one. It is a demanding, over-crowded, ego-bruising retail market. Many companies including retail giants Wal-Mart have been badly bruised by this retail segment. Recession, falling prices, intense competition and consumers who are not very forthcoming in their spending mar the Japanese retail market; all this is what many foreign retailers from England, France, and Germany have found to their dismay. A reason cited for this failure is mainly because they have all tried to go head-to-head with local stores on virtually the same merchandise. [http://www.siamfuture.com/asiannews/asiannewstxt.asp?aid=2251]

PEST & SWOT

The Japanese economy is on its way to recovery now after many years and yet it remains the third biggest economy worldwide. There are various Political, Economical; Social and Technological factors, which would help one, understand the Japanese market.

Political - Wit regards to economic globalization and development, Japan has done extremely well for itself despite the changes in the external environment. The Japanese government has been very proactive in changing and adapting the commercial laws other elements in their economic legal framework. The last few years have seen the country respond to change with a huge amount of ease and flexibility, this is a wonderful trait keeping in mind the changing competitive business environment. Among the new changes, which have, taken place in the country are the adoption of new accounting best practices, mitigating the hold on legal restrictions in the case of mergers and acquisitions and lastly improvising the commercial laws. To elaborate further on the relaxation of rules, the new measures in the case of M&As are designed to simplify the creation of new businesses. The law actually eases the pressure off the business investors by providing legal incentives. The changes also support business reorganization without any unnecessary hitches. The tax benefits towards reorganization of business have been improvised and simplified. Due to the easing off process being applied to legal requirements, there has been a flurry of new business ventures in Japan across different sectors. The office of trade and investment ombudsman is an agency, which serves like a one-stop shop regarding complaints and process enquiries for imports and investments made in Japan. This makes life much easier for companies, which are planning to start something new in the country.

Economical - Japan as an economy is the major hub in the Asian region for various aspects encompassing business, transportation, trade and logistics. The country's economy is extremely strong in the manufacturing and services sector. The country enjoys strapping ties with surrounding countries as well as other ASEAN countries. The Asian trade has Japan as the major centric force. The Tokyo Narita Airport has added a new runway to help increase flights between Tokyo and other global destinations. In Asia, Japan represents the most advanced economy, the history and culture has strength, which is hard to miss when one enters the country. It also reflects in the way the Japanese do business. A lot of multinationals are investing in the country to take advantage of the major economical status the country enjoys. The cost of doing business in Japan has also decreased over the years, this can be seen through the differences in land prices, utility charges, manpower expenditure, bank rate interests etc to mention a few. The taxes in the country compare very favourably with other countries; this is a big advantage for business. This has had a positive effect on property prices, to buy or to lend would be a good option in Japan. Also the cost of infrastructure is steadily decreasing with every year and that also makes it a very viable option. The mitigating labour costs make it easier to hire people with local business knowledge.

Social - Other than being one of the world's top markets and economy, Japan's social standard of living is very comfortable yet cost friendly. The consumers here have a high purchasing power and most of them are very skilled workers. As mentioned before, the country is among the easier places for hiring skilled professionals. The country has a labour force of more than 60 million. The country's education system is also a big pull; it has the highest rate of university goers among the developed nations worldwide. The notions in the Japanese labour market are also on the verge of changing, they have progressed from the concept of "lifetime employment" to a more fluid model. This has helped changing jobs easier in Japan and people are doing so. This is again a factor, which has helped the recruitment of skilled human resources. Most of the world's best business practices are actually implemented here and that allows for easier functioning of businesses. Most expatriates enjoy good living in Japan, the quality and standards surpass those of some of the most developed nations. The medical systems are among the most progressive and the use of cutting edge technology compliments this very well. The crime rate is low and arrest rates are high, this creates a peaceful and harmonious environment for the residents who live free of fear. The country serves all possible cuisines in addition to the healthy authentic Japanese food, which makes eating and socializing easier.

Technological - Japan's technology is rated among the most developed and high tech, the world has witnessed. There is a lot of effort and investment in the field of research and development; it is one of Japan's sustainable competitive advantages against other countries. Further to this the country has taken some effective steps to protect intellectual property rights. The amount that the country spends on research and development along with the number of researchers who actually work actively in this field is high compared to any other developed nation. The country has the highest number of patents registered in the world, a clear proof of their success in the R&D field. The country intends taking their efforts seriously and is introducing a high court in April 2005, which will exclusively deal with only intellectual property cases. These efforts are recognized and appreciated by most businesses and economies, which suffer from the damages they incur due to large productions of counterfeits. Japan's infrastructure in trade, logistics and transportation is highly innovative and well designed. The country's information, communication and technology are also developed at very high standards. This is regarded very highly by other economies and will continue to grow even further during the course of the year. Japan's extremely urbanized road and rail network, which boasts a level of accuracy unmatched elsewhere in the world, facilitates the strategic development of businesses which are entering the country and are already established. [http://www.jetro.go.jp/en/invest/whyjapan/advantage/10a_10.html] To further understand the case in more depth, we also need to undergo a SWOT analysis of Boots plc. This will help in gaining a better understanding about the company's motivation and inclination to enter the Japanese retail market.



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