Asian Nations Crack Japan Market
Stories about discriminating--some even say nit-picking--Japanese consumers have become legend, particularly among foreign manufacturers who for years have been frustrated in trying to sell their products in Japan.
A car won’t sell here because its doors don’t close snugly. An electric clock is snubbed because the wiring on the back is messy. Or a refrigerator is passed up because the shelves sag 1/16th of an inch under heavy weight.
The horror stories still apply, according to Masayuki Oyama, president of Inbix Co., a new firm that has made a splash by selling nothing but imports.
Yet, imports into Japan, once limited to high-priced luxury goods, are suddenly booming--at least in percentage growth.
The big beneficiaries so far have been Japan’s Asian neighbors, particularly the newly industrializing countries, the so-called NICs, of South Korea, Taiwan, Hong Kong and Singapore.
The change has been spurred in large part by the steep appreciation of the Japanese yen, which has lowered costs of imports. But the NICs’ products, too, have changed.
Goods from those countries, Oyama said, used to have an image in Japan as “cheap and bad”--so much so that consumers would return, without using, electronics products that they had bought without noticing their made-in-Asia origins. But now, the image of NICs goods has changed to “cheap and good,” he said.
Ultimately, he predicted, more of the inexpensive NIC products will work their way into Japan’s labyrinthine distribution system. But even now, Asian neighbors are discovering a new growth market for their products in Japan.
The consumer goods penetration, combined with growing imports of parts and components, has raised Japan’s imports of manufactured products from the Asian NICs by an extraordinary 61%, according to the Japan External Trade Organization, or JETRO. From Southeast Asia and China, imports expanded by nearly 50%. Monthly shipments from some of the Asian countries were running at levels triple those of only three years ago.
Customers who visit the growing chain of shops that Inbix has franchised under the name, “NICs Store,” Oyama said, “come in because they know NIC products are inexpensive. But if the goods lacked quality, they would leave without buying anything.”
Although it is still a fledgling operation, Inbix’s sales are expected to more than triple this year, Oyama said, speaking at his newest shop in the Gotanda section of Tokyo, the first all-import store in the capital and the 11th in Inbix’s growing chain.
Many Want Franchises
The others, all franchises, are spread throughout the country, even in tiny remote towns on the northeastern tip of the northern island of Hokkaido.
“More than 500 applicants have sought franchises from us,” Oyama said. “But we are choosing only those with sound financial bases in cities of more than 100,000.”
By the end of the year, Inbix plans to authorize a total of about 20 franchises and expand to about 50 next year, he said.
Inbix is not alone in promoting NICs products. The Seibu Department Store chain last year launched sales of NICs products in gift sections in 35 stores that are expected to generate sales of $770,000 this year. Supplies of NICs goods to corporate buyers will bring in another $1.5 million, said Toshio Chiku, a Seibu buying manager.
Next year, he added, Seibu expects to establish 15 more NICs gift corners and more than double sales.
The relationship between manufacturers and importers is not trouble free. Manufacturers in the NICs, which Chiku started visiting only two years ago, “tell us we do nothing but complain about their products, whereas American buyers come in, take one look, and place an order for 100,000 units,” said Munehiro Umemura, another Seibu buyer.
“But recently, they have started listening to us and trying to design products for the Japanese market,” he added. Japanese customers, as a result, now find the NICs products attractive because of their unique designs or colors, Umemura said.
NICs producers “realize that Japan is the closest market to them--and the one that has the greatest potential for growth,” Chiku added.
Such success stories, however, represent only a tiny beginning of import penetration in the lower end of the consumer market.
Supermarket Chains Import
Last year, 16 times as many color television sets were imported than was the case the year before, a 1987 total of 347,000 sets, while nine times more videocassette recorders--a total of 126,000--were imported. Both figures, however, represented only 4% of the Japanese market. Only the cheapest of consumer items--such as underwear, low-grade $25 cameras, electric fans and calculators--have gained major market shares.
Most of the electronics goods, moreover, are imported by supermarket chains unaffiliated with major Japanese firms. Such chains lack the neighborhood penetration of the 70,000 appliance stores linked with the Japanese giants, and those shops still handle few, if any, imports.
In Akihabara, Tokyo’s famous cut-rate electronics market, none of the major shops have started handling the NICs’ products.
Inbix has attracted major attention from the Japanese mass media mainly because of its novelty as a franchiser of NICs shops, not for its size. Even after tripling this year, sales were expected to reach only $38 million.
Seibu’s annual sales, combined with those of its sister chain, Seiyu, are $11.7 billion, so that revenue from Seibu’s NICs gift corners amounts to just a drop in the bucket. The NICs corner at Seibu’s main department store in the Ikebukuro section of Tokyo occupies only the space of an average bookshelf, and neither Seibu nor Seiyu handles any foreign television sets or videocassette recorders.
Last year, Japan was still buying only 11.5% of the NICs’ total exports, while the United States, Secretary of State George P. Shultz said in a speech in July, took 35.1%.
Japan bought only 6% of the exports of all developing nations in the world in 1987, while the United States imported 36%, noted Kyohei Yamazaki, an analyst at JETRO. Manufactured imports still amounted to just 2.7% of Japan’s gross national product, compared to 7% of America’s GNP, he added.
Seeks Distinctive Items
“Japan still has great leeway to import more manufactured products,” Yamazaki said.
Oyama of Inbix agrees. He is looking forward to transforming his company from a NICs-focused operation to a chain of “World Stores.”
“We chose the name NICs because it had an appeal. Goods produced by the NICs are cheap right now, but no one knows what exchange rates will be five or 10 years in the future. We intend to find the best products from around the world and sell distinctive items from everywhere,” he said.
Indeed, the Inbix shop in Tokyo’s Gotanda section already handles products from non-NIC nations, including the United States. Jeans, candy, film and a variety of food products are among the American goods--but prices stand out as bargains only in comparison with ordinary Japanese stores.
A can of Campbell’s tomato or vegetable soup is priced at $1.12. A jar of California-produced Mary Ellen jam ranges from $2.92 for apricot and $3.54 for blueberry.
Oyama said former Prime Minister Yasuhiro Nakasone provided inspiration for the NICs Store chain with his famous 1985 television appeal urging the Japanese people to buy more imports. Although most Japanese scoffed at the unprecedented plea at the time, Oyama said he took it seriously in the belief that “internationalization” of Japan was a “flow of the times that could not be resisted.”
“Running an enterprise consists of determining what the flow of the times is, and then adapting a strategy to deal with it,” he said.
In Inbix’s case, that meant starting with videocassette recorders, a market that had been monopolized by Japanese makers selling their products here at prices of $750 and more.
“I wanted to find a maker who produced sets cheaply enough to sell at around $200,” Oyama said. He found them in South Korea.
Domestic Goods Lower
The Gotanda Inbix store is now offering sophisticated VCRs at $275 and simple playback-only models at $191. Fourteen-inch color Korean-made television sets bearing both Inbix’s brand name and those of Korean electronics manufacturers Samsung and Gold Star are available for as little as $206.
Electronics shops in Akihabara, the discount electronics center, are now offering Japanese-made VCRs at a sales price of $354, a $31 discount, while the cheapest 14-inch Japanese color TV sets go for $214 on sale.
Automatic-focus cameras from South Korea are selling for between $27 and $68, compared to standard prices for Japanese cameras of between $114 and $154.
Inbix’s next project will be clothing, Oyama says. Suits that cost more than $500 in Japan will be available for about $230, he said. Already, NICs Stores are selling dress shirts for $7.69 to $11.38, or about a fifth of ordinary Japanese prices. Silk neckties that sell for more than $75 at ordinary Japanese shops are offered for $23 at the NICs Stores.
So far, the import penetration has not made sufficient inroads to force average Japanese retailers to cut prices.
At grocery stores in Japan, a can of Coca-Cola is still priced at 100 yen (77 cents), despite the fact that Coca-Cola manufactured in Singapore can be imported and sold for 70 yen (54 cents).
Associate Prof. Kazumasa Iwata of Tokyo University, in an article in the Asahi newspaper, charged that Japanese electronics manufacturers were charging high prices at home to subsidize their sales in the United States, keeping their American prices 30% to 40% below levels in Japan.
Call for Reforms
A major reason for the discrepancy is Japan’s bloated distribution system. Long a focal point of foreign complaints, it recently has come under attack in Japan, too.
Earlier this year, the powerful business group, Keidanren (Federation of Economic Organizations), called for sweeping reforms of both the distribution system and the maze of government regulations that sustain it.
Isao Nakauchi, president of the Daiei supermarket chain and a newly appointed Keidanren vice president, complained that government restrictions on large retail stores, like those his company runs, served to keep imports out while protecting small mom-and-pop stores.
In relation to population, he said, Japan has twice the number of retail stores in the United States--1,350, compared to 690 for every 100,000 persons in the population. Small shops, he said, handle 57% of all retail sales in Japan but only 3% in the United States.
Nonetheless, the rising quality of NICs products and the pressures of price competition are the handwriting on the wall, says Oyama.
Shopkeepers from the Akihabara electronics district, he said, already have visited his Gotanda NICs shop, which just opened July 19.
“They are interested in our operation,” he said. “Shopkeepers know that if they display, side-by-side, a Japanese product that costs 100,000 yen ($769) and a NICs’ product that costs 50,000 yen ($385), the customers will choose the 50,000-yen product,” he said. “The trouble is that there is no guarantee that customers will buy two of the 50,000-yen products for every one of the 100,000 yen products. Sales would probably drop. That is their fear.”
The increasing penetration of imports, however, eventually will force Akihabara, too, to start handling imports, although “it probably will take another two or three years,” he said.
By then, predicted Kazuo Nukazawa, chief of Keidanren’s international economics department, South Korea will enjoy its first trade surplus with Japan. Taiwan, he added, will follow shortly afterward.
