January 10th, 2018
The External environment influencing the expansion decision
Ice cream expansion into Japan provides a variety of opportunities and threats. One of the opportunities is that the industry has a large market that is estimated at 25 percent of the entire Asia-Pacific (Datamonitor, 2008, p.12). Since ice cream consumption in Japan is mainly driven by impulsive purchases [57.8% of the market share] (Datamonitor, 2008, p. 7), the company could structure its marketing strategies to achieve an entry share of the market which it can maintain with diversification and providing quality products. Threats are however posed by the entry into the new market. One of these is the brand loyalty that local competitors have established over time. General mills Inc, is for example noted to have a considerable market share (Datamonitor, 2008) that might prove a challenge to full brown market entry due to their familiarity with the market and distribution channels. Further since most of the buyers in the market are supermarket chains (Datamonitor, 2008), these can have a great buyer power to the extent of including private labels in the products supplied. This would curtail the familiarity of that company’s produce with the ultimate customer thus dealing a blow to establishing direct customer loyalty. The decision to expand to Japan thus needed a CAGE (Culture, Administrative, Geographical and Economical) distance evaluation as proposed by Ghemawat (cited in Sanne, 2007).
Benefits predicted following expansion into a foreign country may not be realizable when country specific characteristics are not assessed beforehand. Ghemawhat proposes that such differences could exist in terms of Cultural, Administrative, Geographic and Economic (CAGE) aspects (cited in Senna, 2007). For products with a linguistic appeal the cultural aspect would for example prove a vital area that determines successful introduction into such a country. Nature of goods being traded would also take into consideration the geographical distance since such could be important in regard to perishable commodity. Administrative policies that limit or the inclusion of certain (nutritive/ coloring) features as well as those regarding establishment of business enterprise could also factor into Sorbet Delicacies’ planned expansion into the Japanese market. Further the economic distance proves vital when the products involved are affected by such factors as the level of income, cost differences, and the business processes (e.g. sourcing raw materials, financial and human resources and competing industries). In view of such differences the company has performed such an analysis of the Japan market.
Japan has been rated favorably as regards to doing business. It has for example been ranked in the 15th position as regards the ease of doing business with its capacity to trade across borders and protecting investors being rated in the 17th and 16th position respectively (The World Bank & the International Finance Corporation [IFC], 2009, p2). Further starting a business has been rated at 91, employing workers at 45, registering property at 54, getting credit at 15 and closing business at position1 (The World Bank & the IFC, 2009, p2). The ratings are based on indicators for each variable such as the number of procedures taken to complete a process and the time period that these procedures take. This perhaps reflects on the CAGE features that guides business entry to a foreign market.
A factor that sets the Japanese market at a challenging position for Sorbet Delicacies’ expansion is its culture. The population which was approximated at 127 million in 2003 comprises of Japanese speaking persons which differs from the official language employed in the market in which the company has been operating – the U.S – (Asahi Koma Law Offices [AKLO], 2004). The language is mainly a preserve of the country hence successful introduction of the product would require the employment of local individuals to front the campaign. The life expectancy of the people – the highest in the world (with women’s expectancy being pegged at 85 and men’s at 78 years [AKLO, 2004]) – probably exemplify the population’s culture. Unlike the U.S where technological advancements and mass culture have lead to a strong sense of individualism (independence), the Japanese still bear sense of identity in groups that stress the aspects of hierarchical relationships (AKLO, 2004). Advancement of individual tastes is viewed more as appreciation of development rather than cultural shifts hence the culture mainly embodies a hybrid of the modern and ancestral practices (AKLO, 2004). This would necessitate a carefully planned entry since such a culture would be subject to influences by peer pressure which then might favor the domestic producers who can tap into the appeal for domestic products to sustain the established markets.
The ethnic composition of the Japanese population, for example, could be a hindrance to full blown establishment immediately. The people comprise of 99 % Japanese with the rest population (Koreans, Chinese, Brazilian, Filipino and other minorities) making up the remaining 1 % (Kwintessential, 2009). Such low ethnic diversity might drive the loyalty for products manufactured by the local companies hence limiting the extent to which foreign investments can exert competition. The Religion of the people is mainly Shinto and Buddhist with other religions such as Christianity being a minority and this has greatly influenced the culture of group identity (Kwintessential, 2009). Such effect has been advanced for “saving face” – request not agreed upon is considered inconvenient rather than rejected – and the harmonious existence practices of the Japanese. Further the Japanese have a high sense of greeting etiquette formulated in accordance with a person’s status and also regard giving gifts especially the way they are presented highly (kwintessential, 2009). The company can tap into such etiquettes by formulating its marketing strategies to meet these expectations.
The administrative distance is partly influenced by the political system followed in the country. The Japanese constitutions sets a government that separates powers between the diet – a system with two distinct lawmaking bodies – and the emperor (representative of the cabinet)– who serves as the head of state devoid of governmental powers (AKLO, 2004). The diet is comprised of: a house of representatives (480 members) that serves for four years unless when dissolved by the prime minister, and a house of councilors (247 members) serving for six years with an election being carried out for a half of the seats after every three years (AKLO, 2004). The house of representatives prevails upon the decisions of the house of councilors in regard to the budgets, choice of prime minister and ratification of treaties with powers to override the councilors’ decisions by a two thirds majority (AKLO, 2004). Such an elaborate system of government provides for the political stability that is necessary for the development of business thus making Japan bait for foreign investment. It also determines the fiscal policies that the government institutes to govern the entry and development in the market.
The country has instituted some measures that govern the entry into the market. Foreign investors entering into some kind of businesses are required to obtain a license which may involve making written commitments to the government specifying the scope of business activities (AKLO, 2004). Further the “foreign exchange and foreign trade law” controls foreign investments and has undergone subsequent amendments to reduce such control but the foreign investments nevertheless are required are required to make an “ex post facto” report to the minister in the respective dockets (AKLO, 2004). Through the “ex post facto” notification capital investment into any Japanese industry is allowed but for: industries such as agriculture, fisheries, mining, petroleum, forestry, and leatherworks and associated products which require a careful evaluation by the Japanese government; and industries dealing with weaponry, atomic energy, explosives, aircraft and space developments that are in direct relation to the security of the nation for which such liberalization is not applicable (AKLO, 2004). Further such notifications must be submitted to the competent ministers via the Bank of Japan, and if such business involves cross-boarder money remittances with the minister in charge of finance (AKLO, 2004). Further tariffs are imposed on imports to protect the Japanese consumer interests but as regarding competition these are set at lowest possible limits to stimulate competitiveness in the industry (AKLO, 2004). Further tax is imposed on imports meant for local and national consumption payable by the recipient of the imports (AKLO, 2004). Such restrictions could be a hindrance for Sorbet Delicacies to establish strong roots into the Japanese market.
The geographic distance of the country also proves a challenge to business entry. First Japan is 6,247 miles/ 10054 km flight distance from the United States with a 14 hours time difference which could factor into the transportation expenses since Ice creams “freshness” could impact on their sales. Further the country’s mountainous terrain could compromise the extent to which intra-boarder transportation is achieved which might explain the fact that most of the buyers in the market are supermarkets rather than individuals (Datamonitor, 2008). The location of the country separated from other Eastern Asia countries by the North pacific ocean and the East sea [Sea of Japan] (Kwintessential, 2009) means that expansion to Japan would mainly be aimed at the populous country rather than neighboring markets since such would involve high transportation costs. However the infrastructural developments that have been undertaken by both the government and the private sector players and the budgeted expenditure on infrastructural developments has seen the development of modern road networks that serve the country and which could aid the intra-boarder transportation of ice cream (Encyclopedia of the nations, 2009). Further, modern sea transportation and an extensive air transportation system developed are essential for the country’s imports which foster international trade (Encyclopedia of the nations, 2009). The climatic conditions which range in maximum and minimum daily temperatures from 8° C and -2° C in January to 30° C and 22° C in August could also influence the sales of ice cream products hence determining the entry period.
The economic distance can be estimated from economic indicators and the financial and human resource sourcing. The world bank and IFC report identifies Japan being 40th in ease of employing workers and 15th as pertains to acquiring credit facilities (2009, p. 2). This perhaps has been advanced by the fact that employment contracts can be made in writing or orally with the written form being a simple contract of the employer’s rules and the labor union’s collective agreement terms being the main constituents (AKLO, 2004). The country also enjoys a favorable economic status with its exports having improved in the recent past fuelled mainly by the automobile industry which has been on the increase following the poor performance of foreign competitors. This has enabled the country to enjoy a favorable balance of payment in respect to countries such as the United States. go to part 4 here.