Reassessing the Japanese Distribution System

Critics describe the Japanese distribution system in such unflattering terms as mysterious, archaic, outmoded, old-fashioned, inefficient, and one of the most complicated jigsaw puzzles ever contrived.1 Industrialists and trade negotiators argue that the complex channels represent a major nontariff barrier to entry in Japan and are a key contributor to the U.S. trade deficit.2 Distribution, therefore, remains a key issue in the continuing trade negotiations between the two countries.

But do these claims bear up under close scrutiny? Are they valid in the 1990s? Recently, we have seen some fundamental shifts in the Japanese economy, Japanese management, and consumer life-styles since the collapse of the “bubble economy.” Recent socioeconomic trends in Japan have filtered through its distribution system, resulting in a number of changes.3

In this paper, we examine the unique features of the Japanese distribution system to highlight some of its merits and demerits. Second, we provide an overview of various drivers that are gradually altering the channels for many consumer products and identify five important trends in Japanese distribution.

Features of Japan’s Distribution System

There are four major features of Japanese distribution systems for consumer products: (1) the size and number of retailers, (2) the length of distribution channels, (3) manufacturers’ domination of many channels, and (4) symbiotic relationships.4 We review each to demonstrate that the claimed differences between Japanese and Western systems may not be as significant as they first appear. Furthermore, rather than being sources of inefficiency, these features may indeed reflect some important strengths.

Size and Number of Retailers

The comparatively high number of retailers in the Japanese system has frequently been used as evidence of inefficiency. However, in many cases, the only country used for comparison was the United States. Thus, for example, using figures for 1982, Goodnow and Kosenko showed that Japan had 1,721,000 retail outlets, or one for every 69 people, compared with the United States, which had 1,923,000 outlets, or one for every 126 people.5 This simple comparison suggests that Japan has more retailers than necessary. By extending and updating the analysis, however, we can see that Japan currently has a greater number of retail outlets per 1,000 people than other industrialized countries like Britain, France, and Germany, as well as the United States. In Europe, the number of retail outlets per 1,000 people is 13.8 in Ireland, 15.2

Read the Full Article:

Sign in, buy as a PDF or create an account.

References

1. C.D. Shepard, M.M. Helms, and R.C. Tillotson, “Japanese Marketing: A Review,” Marketing Intelligence & Planning 10 (1992): 35–40;

J.D. Goodnow and R. Kosenko, “Strategies for Successful Penetration of the Japanese Market or How to Beat Japan at Its Own Game,” Journal of Consumer Marketing, Fall 1990, p. 16; and

W. Lazar, S. Murata, and H. Kosaka, “Japanese Marketing: Towards a Better Understanding,” Journal of Marketing 49 (1985): 79; and

M. Zimmerman, Dealing with the Japanese (London: Allen & Unwin, 1985), p. 134.

For an excellent review, see:

A. Goldman, “Evaluating the Performance of the Japanese Distribution System,” Journal of Retailing 68 (1992): 11–39.

2. R. Kosenko and D. Rathz, “The Japanese Channels of Distribution: Difficult But Not Insurmountable,” in G. Frazier et al., Efficiency and Effectiveness in Marketing (Chicago: American Marketing Association, 1988), pp. 233–236; and

M.R. Czinkota, “Distribution in Japan: Problems and Changes,” Columbia Journal of World Business 20 (1985): 65–71.

3. Goldman terms this approach the institutional-ecological approach, which contrasts with the positivistic-modernization approach in which the U.S.-Western distribution system is used as a yardstick and other systems are evaluated in terms of their closeness to this ideal. Using the institutional-ecological approach, Goldman concludes that Japan’s distribution systems score well on effectiveness dimensions such as service quality, flexibility, and responsiveness to new developments, and equity dimensions such as fairness, but score poorly on performance dimensions such as labor productivity and prices to consumers. See: Goldman (1992): 11–39.

4. See, for example:

M. Shimaguchi and L. Rosenberg, “Demystifying Japanese Distribution,” Columbia Journal of World Business 14 (1979): 32–41;

Czinkota (1985): 65–71; and

M.R. Czinkota and J. Woronoff, Japan’s Market: The Distribution System (New York: Praeger, 1986).

5. Goodnow and Kosenko (1990).

6. A. Goldman, “Japan’s Distribution System: Institutional Structure, Internal Political Economy and Modernization,” Journal of Retailing 67 (1991): 156.

7. M. Ariga, “Mass Retailing to the Japanese Consumer,” Japan 1992: Marketing and Advertising Yearbook (Tokyo: Dentsu Inc., 1992), p. 66.

8. Sales for the wholesale sector include that of the general trading companies, which gives something of an inflated view of the size of the sector in international terms.

9. M.Y. Yoshino, The Japanese Marketing System: Adaptations and Innovations (Cambridge, Massachusetts: MIT Press, 1971), pp. 2–6 and pp. 183–185.

10. Goldman (1991), p. 167.

11. Market-based pricing is the practice of setting prices based on an assessment of likely market reaction. Competitive pricing is the practice of setting prices in line with those of competitors. See:

Y. Tajima, ed., Manufacturer’s Price Policy and Competition (Tokyo: Fair Trade Foundation, 1988), p. 331 (in Japanese).

12. Goldman describes these relations as the “internal economy” of the channel, suggesting that the modern segment of Japanese distribution has remained traditional due to these practices, thus constraining its development. See:

Goldman (1991).

13. J.H. Dyer and W.G. Ouchi, “Japanese-Style Partnerships: Giving Companies a Competitive Edge,” Sloan Management Review, Fall 1993, pp. 51–63.

14. “Tangled Up in Regulation,” Tokyo Business Today 61 (1993): 9.

15. Dodwell Marketing Consultants, Retail Distribution in Japan (Tokyo: Dodwell Marketing Consultants, 1991), pp. 51–54.

16. “Pussycat: Japan’s Fair Trade Commission,” The Economist, 23 October 1993, pp. 75–76.

17. “Marketing in Japan: Taking Aim,” The Economist, 24 April 1993, p. 70.

18. “Recession Gives Rise to New Attitudes,” Nikkei Weekly, 13 December 1993, p. 6.

19. Ariga (1992): 64.

20. “They’ve Got Their Feet in the Door,” Business Week, 31 May 1993, p. 20.

21. “Can’t Get Enough of that Super Yen,” Business Week, 4 October 1993, p. 26–27.

22. A. Toffler, Powershift: Knowledge, Wealth and Violence at the Edge of the 21st Century (New York: Bantam Books, 1990), pp. 95–105.

23. H. Ishii, “Retailing in Japan: the Price Revolution, Category Killers and Survival Strategies,” NRI Quarterly 2 (1993): 20–33.

24. “Daiei Supermarket an Exercise in Austerity,” Nikkei Weekly, 3 January 1994, p. 10.

25. Japan External Trade Organization, “A Wealth of Opportunity: Japan’s Distribution Channels” (Tokyo: JETRO, 1993), p. 40.

26. Ariga (1992): 69.

27. “Post Haste: Japan’s Mail Order Firms Thrive While Retailers Sink,” Far Eastern Economic Review, 20 May 1993, p. 64–65.

28. “At Your Convenience: 24-Hour Services Take Root in Urban Areas,” Daily Yomuri, 9 September 1993, p. 10.

29. JETRO (1993): 35.

30. M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980), pp. 34–46.

31. The importance of adopting this dual position has been noted by some writers looking at manufacturing firms. See, for example:

W. Hall, “Survival Strategies in a Hostile Environment,” Harvard Business Review, September–October 1980, pp. 75–85; and

X. Gilbert and P. Strebel, “Developing Competitive Advantage,” in H. Mintzberg and J.B. Quinn, eds., The Strategy Process (London: Prentice-Hall, 1991), pp. 82–93.

32. “Ito-Yokado Tops List of High Growth Companies,” Nikkei Weekly, 26 April 1993, p. 9.

33. See: V.R. Alden, “Who Says You Can’t Crack Japanese Markets,” Harvard Business Review, January–February 1987, pp. 52–56;

J.G. Kaikati, “Don’t Crack the Japanese Distribution System — Just Circumvent It,” Columbia Journal of World Business 28 (1993): 34–45; and

V. Kouyoumdjian, “Foreign Firms Overcome Obstacles,” Journal of Japanese Trade & Industry 5 (1993): 18–20.