See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/239044255

Distribution channels in Japan : Challenges and opportunities for the Japanese

market entry

Article in International Journal of Physical Distribution & Logistics Management · December 1996
DOI: 10.1108/09600039610150433

CITATIONS READS

34 16,483

1 author:

Hokey Min
Bowling Green State University
277 PUBLICATIONS 12,854 CITATIONS

SEE PROFILE

All content following this page was uploaded by Hokey Min on 01 May 2015.

The user has requested enhancement of the downloaded file.

IJPDLM
26,10
22
Received September 1995
Revised March 1996
International Journal of Physical
Distribution & Logistics
Management, Vol. 26 No. 10, 1996,
pp. 22-35. © MCB University Press,
0960-0035
Distribution channels in Japan
Challenges and opportunities for the
Japanese market entry
Hokey Min
Department of Marketing and Transportation,
College of Business, Auburn University, Auburn,
Alabama, USA
Introduction
Despite the fact that US exports to Japan have jumped greatly in the last two
years, the USA still has a large trade deficit with Japan[1]. As it does not appear
to be in decline, a growing number of US policy makers and business managers
have begun to scrutinize Japanese trade practices. A prevailing thought among
them is that the Japanese market is not open to US products, whereas the US
market is open to Japanese products. As such, the Clinton administration
attempted to develop tough measures against a whole web of Japanese trade
practices, business customs, and government policies, through a threat of trade
sanctions against Japanese products. Such measures, however, can backfire
because they may not only result in higher prices and fewer choices for
American consumers, but also increase anti-US sentiment among Japanese
consumers. The recent survey conducted by Czinkota and Kotabe[2] indicates
that trade negotiations alone will not enhance the ability of US firms to enter the
Japanese market. A more effective way of enhancing the ability of US firms to
penetrate the Japanese market is to study the business practices that the
Japanese have adopted over the centuries.
One business practice that is perceived to be a major obstacle in entering the
Japanese market is an indigenous form of distribution channel which often
disfavours foreign firms because of legal impediments, or the channel member’s
“locked-up” relationship with Japanese firms[2,3]. In fact, Yamawaki[4] affirms
that the success of US exports to Japan largely depends on the US ability to
overcome those distributional entry barriers. Despite its significance to
Japanese market access, the Japanese distribution system is often mis-
understood or found to be mystifying by Westerners. Such a misunderstanding
is due to the complex and idiosyncratic nature of the distribution practices that
have evolved from the ancient, self-contained feudal system. In an effort to help
US businesses succeed in the lucrative Japanese market and ease unnecessary
trade conflicts, we unveil facts and fallacies of Japanese distribution and
explore strategic weapons that may be essentials to the successful penetration
of the Japanese market.
An overview of Japanese distribution channel structures Distribution
In contrast to the typical US distribution channel which is open, independent, channels in
and margin-driven, the Japanese distribution channel is often characterized as a Japan
long, complicated network of relation-driven middle men who are interacting
closely with “fellow-trade” wholesalers, brokers, manufacturers, importers, and
retailers. Within this channel, it is not uncommon to include as many as four
layers of wholesalers. The relative lengths (or stages) of wholesaler channels are 23
usually determined by the industry type, the financial linkages among channel
members, the size of the retailer, and the size and brand recognition of the
manufacturer. Such intricacy of the Japanese distribution channel is deeply
rooted in the Japanese culture and socio-economic setting that underlies
Japanese business customs. In the next subsections, we will highlight the
unique aspects of the Japanese distribution channel and from where these
unique structures have evolved.

Dominance of wholesalers
Even if wholesalers contributed little to functional performance, they have
long controlled the Japanese distribution channel through vertical integra-
tion, financial linkage, and reciprocity dealings. In 1988, for example, total
wholesaler sales volume in Japan was estimated to be 3.1 times total retail
sales volume, while US wholesaler sales volume was about the same as its
retail sales volume[5]. Ito and Maruyama[6] also reported that while 41.9 per
cent of Japanese wholesaler purchases came from other wholesalers, only 24.8
per cent of US wholesaler purchases originated from other wholesalers. More
frequent trading among wholesalers means little direct distribution oppor-
tunities. In fact, Japanese retailers purchased 92 per cent of their merchandise
from wholesalers, while US counterparts bought only 23 per cent from their
wholesalers[7]. As such, 64 per cent of the US firms operating in Japan
indicate that they are dependent to some degree on the Japanese wholesalers
in distributing their products to Japanese consumers[8].
Due to a lack of control over local distribution/sales operations, heavy
reliance on the wholesalers has become a major stumbling block for foreign
firms entering the Japanese market. Nevertheless, with the slow pace of
structural changes in Japanese distribution, establishment of a “non-captive”,
independent distribution channel is still not a viable option for many foreign
firms which would like to enter the Japanese market. Some major reasons
include:
(1) Through a so-called “keiretsu” network, manufacturers, wholesalers, and
retailers are often tied by reciprocal trade obligations and therefore such
a network controls product distribution/sales from factory doors to retail
outlets. That is to say, foreign firms may face severe difficulty in
reaching Japanese consumers without aligning themselves with a web of
distribution keiretsu networks. Such alignment, however, may pose some
managerial risk for foreign firms due to the Japanese keiretsu partner’s
IJPDLM different management philosophy, business scope, relationship building,
26,10 and legal boundary.
(2) Due to the Warehouse Industry Law that requires firms to obtain permits
to establish warehouses and to register warehouse fees with the Japanese
government, foreign firms may run into difficulty in establishing and
operating their own warehouses[9].
24
(3) To keep the constant supply to retailers who usually order in small
quantities with wide assortments, the need for wholesalers is much
greater in Japan than in the USA. The rationale is that wholesalers can
purchase in large quantities from manufacturers and divide them into
smaller quantities that are sold to retailers.

Complex layers of wholesalers

As shown in Figure 1, there are four different levels of wholesalers in Japan;
trading companies, primary (initial) wholesalers, secondary (intermediate)
wholesalers, and tertiary (final) wholesalers. Trading companies are large
wholesale intermediaries which normally distribute a wide spectrum of

Manufacturer

Trading Direct
company transaction
(Sogo shosha) wholesaler

Primary
wholesaler
(large-sized)

Primary broker

Secondary Sales
wholesaler subsidiary
(medium-sized) (Hansha)

Secondary
broker
Tertiary
wholesaler
(small-sized)
Figure 1.
Marketing flows of the
Japanese distribution
channel Retailer, industrial buyer
products encompassing raw materials and finished goods to smaller Distribution
wholesalers. According to Shao and Herbig[10], there exist more than 8,000 channels in
trading companies in Japan. Among these, the 16 largest ones actively engaged Japan
in foreign trade are called “sogo shosha” (general trading companies). Most of
them, such as Mitsubishi and Mitsui, evolved from horizontally and vertically
integrated “Zaibatsu” organizations which dominated both production and
distribution until the end of the Second World War. The basic functions of sogo 25
shosha include trade promotion, market consulting, inventory maintenance,
freight forwarding, information gathering, and technology acquisition[10].
Depending on the industry need or the keiretsu connection, additional
wholesale layers may be involved in matching sogo shosha to retailers or
industry buyers of a variety of products. The primary wholesaler sometimes
purchases only one brand of merchandise in large quantities and supplies the
merchandise to either secondary wholesalers or industrial buyers. At the
succeeding stage, the secondary wholesaler consolidates a variety of goods
from primary wholesalers and diffuses the merchandise to tertiary wholesalers.
In certain industries, such as the fisheries, the primary wholesaler can contract
out to primary brokers to get fish products to the secondary wholesalers. At the
exit of the wholesale channel, the tertiary wholesaler delivers a wide assortment
of goods in small quantities to “mom-and-pop” stores. It also maintains large
inventories, makes a quick delivery, accepts unsold goods, and sends some of its
employees to help promote special sales for mom-and-pop stores.
With additional steps of wholesale trading described above, the wholesale
margin can increase and consequently raise retail prices for Japanese
consumers. As such, the multilayered wholesale channel in Japan is often
harshly criticized by many Westerners. In fact, Batzer and Laumer[11] implied
that the Japanese wholesale channel could add as much as 60 per cent to the
price of products and add up to 300 to 500 per cent to the landed price of
imports. The multilayered wholesale channel, however, offers some important
advantages for Japanese retailers. These are:
• Through the multilayered channel, downstream tertiary wholesalers can
afford to make small deliveries of less than truckload quantities on a
frequent basis via non-conventional transportation modes such as
bicycles and motor scooters. Such delivery service would help small
mom-and-pop retailers with limited space replenish inventories without
carrying them.
• The multilayered wholesale channel links the wholesalers to atomistic
retailers scattered all over the Japanese islands and, through quick
negotiations and break-bulking, helps move the product rapidly from
production to retail and consumption[12].
• The close linkage among the multilayered channel members encourages
the sharing of information on product trends, innovations, competition,
and overall market opportunities[13]. Thus it will help the Japanese
retailer provide more streamlined customer services.
IJPDLM Unusually large number of small retail stores
26,10 As of 1989, there were 132 retail stores for every 10,000 Japanese people and a
total of approximately 1,620,000 retail stores in Japan, while the USA has 66
retail establishments per 10,000 residents and a total of about 1,542,000 retail
stores[14]. In Japan, small retail stores of less than 3,200 square feet account for
56 per cent of total retail sales as compared with 3 per cent for the USA. They
26 also comprise 99.6 per cent of total retail stores[15]. These statistics clearly
suggest that the Japanese retail industry is highly fragmented and dominated
by small retailers which are often undercapitalized, but conveniently located in
the back of residential neighbourhoods. There are a number of reasons why the
Japanese retail industry has so many small retail stores:

A form of social welfare

As of 1985, 6,329,000 Japanese were employed on a full-time basis by the retail
sector[16]. In other words, a labour-force-participation ratio for the small retail
stores is relatively high in Japan. Many retail stores were established and
operated by ageing Japanese retirees. Therefore, regardless of economic
inefficiency, many small retailers have been protected by the government because
they provide secure jobs and income for a large segment of Japanese society.

Japanese shopping behaviour

Owing to notorious traffic congestion and preference for fresh products such as
“sushi and sashimi”, Japanese consumers tend to shop in the immediate vicinity
of their homes. They are also very choosy and have a penchant for a high level of
services. Services that they normally expect to receive from retailers include free-
of-charge delivery, less than six hours for delivery, delivery time designation, off-
hour handling, aid in product selection, unlimited warranty, and post-sale follow-
up transactions[16,17]. Since mom-and-pop stores usually provide such services
beyond the act of simply offering goods for sale, the abundance of small-scale
mom-and-pop stores is an inevitable phenomenon in Japan.
In addition, Koyama[18] observes that Japanese consumers tend to possess
many different items at home due in part to the extended family structure; for
example, an average Japanese household keeps about 800 belongings, while a
German or French counterpart has around 600 belongings. This suggests that
Japanese consumers often require more diversified product lines. For example,
the typical Japanese household may need to keep several different types of cups
specially designed for coffee, ceremonial tea, and “sake”. As such, many small
retailers altered their product lines to diversify and have begun to carry locally
produced specialty items which are too uneconomic for large retail stores to
include as part of their product lines[19]. In fact, most of the small Japanese
retailers are specialized and carry relatively deep assortments to satisfy local
demand[20]. In other words, Japanese demand for more diversified products
may have led to the various establishments of small but specialized retail shops.
Large Scale Retail Store Law Distribution
The most important regulation affecting Japanese retailing is the Large Scale channels in
Retail Store Law that regulates the opening and expansion of large-scale retail Japan
stores with their floor space exceeding 500 square metres (i.e. 5,400 square
feet)[21]. This law is usually overseen by the Ministry of International Trade
and Industry (MITI), but they also give authority to the local prefecture
government which can further lower the requirement to 300 and 200 square 27
metres[22]. To make matters worse, MITI’s notification process for the formal
approval of planned stores can take 14 months to 20 months or more[9]. As a
result, only 11 large retail stores were permitted to open in the whole of Japan
during 1985 through 1988[14]. Until recent years, this regulation has helped
sustain a large number of small-scale retail stores in Japan by systematically
restricting the establishment of large-scale retail stores, such as department
stores (see Figure 2 for various forms of Japanese retailing). Such regulation
may have originated from the government’s fear of a retail price war spurred by
large stores and the subsequent disruption of traditional Japanese distribution
culture. The dominance of small stores in the Japanese retail sector often
hampers the new market entrants, such as foreign firms, from selling their
products to Japanese consumers, because small stores tend to keep only a
limited selection of merchandise and consequently cannot afford to carry
foreign products.

Japanese retailing

Independent retailers Corporate retailers

Figure 2.
Shotengai Department General Speciality Franchising Various patterns of
Street stores merchandise shopping chain stores Japanese retailing
Association stores centres

The Japanese government, however, has begun to relax the law regulating the
growth of large-scale retail stores. In the wake of the Strategic Impediments
Initiative (SII) talks between the USA and Japan, Japan’s MITI agreed to limit
the approval process for large-store applications to under 18 months and
allowed the retailers to extend their store hours; consequently, applications for
the large stores soared by 50 per cent in the recent past[23]. The continual
relaxation of the large-scale retail store law would present an opportunity for
IJPDLM non-Japanese firms to increase their leverage in the Japanese retail sector, as
26,10 evidenced by the growing presence of Toys “R” Us in the Japanese toy market.

Good ol’ boys distribution network called keiretsu

Surprisingly, Onkvisit and Shaw[24] recently observed that only 7 per cent of
Japan’s manufactured goods were protected by the Japanese government, while
28 34 per cent of the products manufactured in the USA were protected by the US
government. A number of US firms have reported their difficulty in cracking
the Japanese market and their complaints focused on the strong local
distribution network called “keiretsu”[3] which is a significant market barrier.
In general, keiretsu are referred to as a large group of related companies which
share common interests, common banks, and typically, interlocking boards of
directors and cross-equity participation[25]. Depending on their formation and
principles, keiretsu are commonly divided into two types: horizontal and
vertical. The horizontal keiretsu are usually organized around a bank and
consist of a variety of companies that perform different functions in diverse
fields[26]. Since the horizontal keiretsu resemble cartels in that they tend to
restrict business interactions with non-keiretsu organizations, they have been
sharply criticized by many US business and political leaders[27]. Unlike the US
government, the Japanese government loosely enforced its anti-trust laws, and
consequently a number of Japanese firms such as Mitsubishi, Mitsui,
Sumitomo, Sanwa, Dai-chi Kangyo, and Fuji, have successfully used the
horizontal keiretsu system.
Unlike the horizontal keiretsu, the vertical keiretsu are usually composed of a
major industrial corporation and its suppliers or distributors/retailers in a
particular industry such as automobiles and electronics[26]. The vertical
keiretsu can be further subdivided into supply keiretsu and distribution
keiretsu. Supply keiretsu are groups of companies integrated along a supply
chain dominated by a major manufacturer such as Toyota, Nissan, Toshiba, and
Hitachi[27].
In contrast to the supply keiretsu which have interlocking interests in their
upstream suppliers, the distribution keiretsu develop the web of relationships
with their downstream distributors and retail outlets. Since the distribution
keiretsu tend to exclude non-keiretsu companies (both foreign and domestic)
from competition and tend to keep retail prices high for consumers through the
retail price maintenance agreement, the distribution keiretsu may be the
important cause of distribution inefficiency. Nevertheless, the Japanese
traditional culture often values mutual trust and loyalty created by the
distribution keiretsu (see Table I). Therefore, it is still an accepted form of
business practice in Japan where a paternalistic business relationship
developed by the distribution keiretsu precedes its economic inefficiency.
Distribution keiretsu offer various managerial benefits for the participating
members which include:
Technology and information transfer Distribution
Without the foundation for a stable, long-term, and co-operative relationship channels in
among the manufacturer, the wholesaler, and the retailer, the distribution Japan
keiretsu are doomed to failure. Accordingly, a close partnership is the
cornerstone of distribution keiretsu. Such a partnership can only be established
by mutual information and technology sharing through open communication
among the keiretsu members. For example, Japanese manufacturers often 29
supply advanced retail support involving computerized online data processing
systems that provide retailers point-of-sale (POS) information about consumer
behaviour, per capital sales, and customer credit[13,28]. Furthermore, some
progressive Japanese firms have recently developed electronic ordering systems
(EOS) with POS to supplement inventory, shorten delivery time, and reduce
delivery errors[28]. In fact, Milgrom and Roberts[29] note that the keiretsu have
proven to be extremely effective in responding to new market opportunities by
transferring information and technology among the members.

USA Japan

Cultural type Low-context High-context

Prevalence Logic Emotion
Communication style Explicit, verbal Abstract, less verbal
Sense Efficiency Surface harmony
Table I.
Value Substance Presentation Comparative cultural
Constraint Legal sanctions Social obligations backgrounds of the
Business bondage Economic well-being Human relation USA and Japan

Financial risk sharing

Through mutual share holding, distribution keiretsu encourage their members
to not worry about hostile takeovers and subsequently focus on their long-term
interests such as new product marketing and distribution. Also, many
manufacturers traditionally provide their keiretsu members with several forms
of financial assistance, such as credit extension, acceptance of promissory notes
with deferred payments, discretionary rebates, and return privileges of unsold
products at no cost. Such assistance will help the keiretsu members survive
through tough financial times.

Stable supply of the needed merchandise

The keiretsu manufacturer can assure its downstream distributors and retailers
a constant supply of the needed merchandise through exclusive dealings. Such
merchandise often includes high quality brand name products that many
Japanese consumers tend to favour over the unknown quality of obscure brand
products. With the long-term stability and security guaranteed by the keiretsu
system, the keiretsu manufacturer can bring its downstream distributors and
IJPDLM retailers under its wing and thus assure long-term partnership with its
26,10 members. That is to say, keiretsu member distributors and retailers are likely to
adapt their delivery schedule to the requirements of their customers on a stable
basis.

Japanese market penetration strategies

30 In the past year, Japanese bought twice as many US products ($47.9 billion in
total) as they did about eight years ago[30]. As opposed to what many
Americans allegedly believe, this statistic indicates that the Japanese market is
not impenetrable. Although a majority of Japanese consumers may not be
content with Western-style marketing and distribution strategies, there is an
increasing sign of hope. For example, several US firms, such as Coca-Cola,
Salomon Brothers, and Toys “R” Us, are reported to make more profits in Japan
than in the USA[31,32]. In addition, many other US firms such as McDonald’s,
Schick, IBM, Xerox, Motorola, Bose, and Johnson & Johnson have captured the
number one market share in Japan thanks to their emphasis on customized
marketing tailored for Japanese consumers[32]. The recent marketing success
in Japan is not limited to US firms. A growing number of European and Asian
firms have begun to attain a strong foothold in Japan through their strong
commitment to product quality and variety. These firms include the German
automaker, BMW; the Italian sportswear producer, Fila; the Belgian chocolate
maker, Dalloyau; the French cosmetic firm, L’Oreal, and the Taiwanese bicycle
manufacturer, Giant[33-35]. Following suit, other US firms can capture a larger
share of the Japanese market by adopting a number of proactive marketing/
distribution strategies described below.

Targeting specialized niche markets

Targeting the neglected segment of the Japanese market has proven to be a
successful strategy for some US firms operating in Japan. For example,
American Family Life Assurance Company (AFLAC) based in Columbus,
Georgia, began to sell cancer insurance policies in Japan where cancer is the
number one killer. Although foreign firms used to share less than 3 per cent of
Japan’s $390 billion-a-year insurance market, AFLAC found a way to insure 28
million Japanese primarily for cancer, roughly 22 per cent of the Japanese
population[36,37]. Its unusual success in the tightly regulated Japanese market
is due to AFLAC’s recognition that supplemental cancer insurance was largely
neglected by Japanese competitors who focused on typical life and health
insurance. As such, AFLAC was given the license to sell cancer insurance
policies including so-called “Super Cancer” which pays a cash disbursement
when cancer is first diagnosed, because selling such policies are not in direct
competition with Japanese insurance companies[38].
As Dorney[39], a co-founder of Daytimers, succinctly summarizes, the
success in the foreign market rests on the company’s ability to recognize and
deal with the special characteristics of its chosen market segment. Such ability
is particularly important in Japan, because Japan is broken down into
fragmented market segments, each with its own distinct distribution culture, Distribution
tastes, and territories. Considering this, the foreign firm may concentrate efforts channels in
on only the most attractive or untapped market segments and later expand Japan
distribution. Those efforts, however, may take years to pay off.

Selling under Japanese brand names

Though less inclined towards conspicuous consumption, Japanese consumers 31
tend to display great respect for goods produced by the large corporation which
carries famous brand names and good image[15,18]. Very often, such a
corporation happens to be the well-known Japanese firms. Considering the
Japanese consumer’s brand loyalty, some Asian firms such as Korean electronic
manufacturers and Hong Kong garment makers, sold their products
successfully in Japan under the Japanese brand names[34]. Selling under
Japanese brand names, however, means that the foreign firm delegates all of
their marketing and distribution tasks to the local Japanese distributor. Thus,
the foreign firm’s ability to exercise control over how its products are marketed
will be greatly restrained. Also, the foreign firm’s chance of gaining a strong
foothold in the Japanese market may diminish, since it cannot establish its own
consumer brand loyalty.

Emphasizing follow-up services

Although Detroit’s big three automakers are expanding sales of US models in
Japan, their market share remains a tiny slice (less than 1 per cent) of the
Japanese auto market[40]. One of the main reasons for sluggish sales of US cars
in Japan is a lack of effort on the part of US automakers to improve their post-
sales services. For instance, Inoue, senior managing director of Autorama,
pointed out that it often took two to three weeks to receive spare parts for Ford
models compared with two to three days required to obtain spare parts for
Japanese-made cars[41]. On the other hand, BMW invested $29.7 million to
improve their follow-up services including quick part delivery and such an
effort may have helped them become the number one import automaker in
Japan[35].

“Piggybacking”
In an effort to circumvent the Japanese distribution maze, some US companies
are “piggybacking” with other US ventures which have already established
their own distribution channels in Japan. For example, Blue Diamond Almond
Growers of California teamed up with Coca-Cola to take advantage of the
complementary nature of snack foods and soft drinks, while utilizing Coca-
Cola’s well-established distribution routes in Japan. As a result, Blue Diamond
has successfully achieved its target goal of 40 per cent of the Japanese market
share in ten years[42]. In another example, Shop America aligned with 7-Eleven
in Japan to distribute their catalogues to potential Japanese consumers and take
orders from them through the well-established 7-Eleven’s distribution
network[43].
IJPDLM As illustrated above, piggybacking is an effective means of circumventing
26,10 the locked-up distribution channel in Japan. However, it is not without some
drawbacks, such as a limited opportunity of piggybacking for non-
complementary product lines, the piggyback rider’s limited direct control over
its distribution operations, and the compensation of the piggyback carrier for
its distribution services.
32
Selling directly to non-keiretsu chain stores or “cash-and-carry” wholesalers
Although excluded from carrying many traditional Japanese national brands,
the so-called “cash-and-carry” wholesaler has emerged as the major distribution
force in the Japanese wholesale sector. They defy norms by bypassing the
traditional multilayered distribution channel, and distributing foreign imports
at substantially lower prices through discount stores. Since they are not
affiliated with the keiretsu network, many foreign firms which are excluded
from the distribution keiretsu may channel through the well-recognized “cash-
and-carry” wholesalers such as Etoile Kaito and Companies. In fact, Stone[34]
noted that South Korean TV makers and Taiwanese computer manufacturers
utilized these independent wholesalers to market their products to Japanese
consumers.
Similarly, non-keiretsu retail giants such as Daiei, Ito-Yokado, and Seiyu,
bought $2.05 billion worth of goods directly from neighbouring Asian countries
and successfully sold them under their own brand names at discounted
prices[34]. Although Japanese consumers are less sensitive to price advantages
than are their US counterparts, the aforementioned forms of distribution
recently gained popularity from Japanese consumers who have become more
price conscious due to ongoing recession in Japan and gradual changes in their
lifestyles. Despite numerous merits, the foreign exporter’s heavy reliance on
unauthorized Japanese distributors may undermine consumer loyalty to its
products, because many Japanese consumers channelled through the
unauthorized distributor can be excluded from post-sales warranty services
and product recall.

Direct marketing
Some foreign firms such as Daytimers, Amway, and Otto Versand, which were
overwhelmed by the Japanese distribution complexity, have developed a variety
of direct marketing techniques involving telemarketing, daytime TV shopping,
door-to-door selling, in-home party, and mail ordering to reach Japanese
consumers directly. Although direct marketing accounted for only 1 per cent of
Japanese retail sales in 1987, it shows a sign of promise[44]. According to the
Japanese Ministry of Labour, retail sales through direct marketing have doubled
from 1983 to 1988[45]. This drastic increase in the volume of direct marketing
retail sales may have resulted from the increase of Japanese working women
who have less free time to shop. In fact, Dodwell Marketing Consultants[46]
reported that over 50 per cent of Japanese working women used mail order at
least once a year, while only 30 per cent of working men bought merchandise
through mail order. For example, many Japanese women are unwilling to buy Distribution
their underwear and hosiery at the retail store, because they often feel shame channels in
when shopping for those products in public. Therefore such merchandise can be Japan
a perfect candidate for mail-order-based direct marketing.
Nonetheless, some direct marketing techniques require fine tuning. For
example, telemarketing targeted for Japanese housewives may backfire because
they could be easily offended by unsolicited phone calls from strangers. Mail 33
order sales also may create problems, because of unusually high mail cost, lack
of a third class rate, and serious difficulty in obtaining direct mail listings in
Japan[43].

Conclusions
In recent years the US policy makers made the Japanese distribution barrier one
of the most significant topics at bilateral negotiations with the Japanese
government for the Structural Impediments Initiative (SII) talks. However,
many US firms interested in entering the Japanese market are often unaware of
various opportunities for turning what is considered to be a market entry
barrier into advantageous incentives aiding entry. Such unawareness is due in
large part to the Westerner’s misunderstanding of the Japanese distribution
system, which has long evolved from Japanese cultural and historical roots. For
instance, Americans tend to perceive the Japanese distribution system as a
“closed” and exclusive lockout, whereas the Japanese tend to view their system
as one of “close” co-operation crucial for the constant harmony of their society.
From Table I, it is evident that the Japanese cultural base is quite different from
its US counterpart. Therefore, it is naïve to evaluate the Japanese distribution
system from the US perspective only. As Goldman[20] observed, the Japanese
distribution system displays high levels of consumer responsiveness, co-
ordination, and equity, while yielding low labour productivity.
Recognizing those differences, it is time for the US companies to re-formulate
their distribution/marketing strategies which can adapt to the current Japanese
rules and standards. In so doing, the US firms should increase joint inter-
dependency between domestic and foreign firms operating in Japan so that
they can encourage a mutual exchange of information which, in turn, facilitates
concrete understanding of market competition, distribution dynamics, and
consumer needs. Furthermore, the US firms must not only shift their focus from
short-term profit/cost saving to long-term gain/stability, but also re-examine
their conventional channel alternatives, so that they can create the most
streamlined distribution channels that will fit best with their long-term
objectives in the Japanese market.

References
1. Montague, B., “Gap isn’t likely to disappear”, USA Today, 21 February 1994, p. 3B.
2. Czinkota, M.R. and Kotabe, M., “ Distribution and trade relations between the United States
and Japan: an overview and assessment”, in Czinkota, M.R. and Kotabe, M. (Eds), The
Japanese Distribution System, Probus, Chicago, IL, 1993, pp. 5-19.
IJPDLM 3. The Fair Trade Commission’s Report, The State of the Japanese Market as Seen by
Foreign-owned Companies, June 1990.
26,10 4. Yamawaki, H., “Exports and foreign distributional activities: evidence on Japanese firms
in the United States”, The Review of Economics and Statistics, 1991, pp. 294-300.
5. Maruyama, M., “The structure and performance of the Japanese distribution system”, in
Czinkota, M. and Kotabe, M. (Eds), The Japanese Distribution System, Probus, Chicago, IL,
1993, pp. 23-41.
34 6. Ito, T. and Maruyama, M., “Is the Japanese distribution system really inefficient?”, in
Krugman, P. (Ed.), Trade with Japan: Has the Door Opened Wider?, University of Chicago
Press, NBER, Chicago, IL, 1991, pp. 149-74.
7. Rosenberg, L.J., “Cultural background: implications and effects on Japanese distribution
channels”, in Harvey, M.G. and Lusch, R.F. (Eds), Marketing Channels: Domestic and
International Perspectives, CBA, University of Oklahoma, Norman, OK, 1982, pp. 133-36.
8. McKinney, J.A. and Rajaratnam, D., “The Japanese distribution system: an empirical
investigation of US firms operating in Japan during the seventies and eighties”, in
Czinkota, M.R. and Kotabe, M. (Eds), The Japanese Distribution System, Probus, Chicago,
IL, 1993, pp. 67-80.
9. Manifold, D.L., “Accessing Japan’s distribution channels”, in Czinkota, M.R. and Kotabe, M.
(Eds), The Japanese Distribution System, Probus, Chicago, IL, 1993, pp. 43-66.
10. Shao, A.T. and Herbig, P., “The future of sogo shosha in a global economy”, International
Marketing Review, Vol. 10 No. 5, 1993, pp. 37-55.
11. Batzer, E. and Laumer, H., Marketing Strategies and Distribution Channels for Foreign
Companies in Japan, Westview Press, Boulder, CO, 1989.
12. Dholakia, N. and Hayashida, H., “Structural issues in an import intensive channel: the case
of fish distribution in Japan”, in Czinkota, M. and Kotabe, M. (Eds), The Japanese
Distribution System, Probus, Chicago, IL, 1993, pp. 295-307.
13. Kennedy, E.M., “The Japanese distribution system”, Business America, Vol. 114 No. 10,
1993, pp. 20-21.
14. “Structural changes in Japan’s distribution system”, Japan Economic Institute Report 43
A, 10 November 1989, p. 2.
15. Schuster, E.W., “You can’t remove cultural barriers”, Transportation and Distribution, June
1991, pp. 43-5.
16. Marvel, H.P., “Contracts and control in Japanese distribution”, Managerial and Decision
Economics, Vol. 14, 1993, pp. 151-62.
17. Byrne, P., “Assessing logistics performance in Japan”, Transportation and Distribution,
October 1993, pp. 54-8.
18. Koyama, S., “The distribution structure in the Japanese market”, Management Japan,
Vol. 18 No. 2, 1985, pp. 17-20.
19. Larke, R., “Japanese retailing: fascinating, but little understood”, International Journal of
Retail & Distribution Management, Vol. 20 No. 1, 1992, pp. 3-15.
20. Goldman, A., “Evaluating the performance of the Japanese distribution system”, Journal of
Retailing, Vol. 68 No. 1, 1992, pp. 11-39.
21. Suzuki, Y., “Large-Scale Retail Store Law: historical background and social implications”,
in Czinkota, M. and Kotabe, M. (Eds), The Japanese Distribution System, Probus, Chicago,
IL, 1993, pp. 163-70.
22. Czinkota, M.R. and Woronoff, J., Unlocking Japan’s Markets, Probus, Chicago, IL, 1991.
23. “Asia: opportunities large and small”, Chain Store Age Executive, January 1995, section 3,
p. 6.
 24. Onkvisit, S. and Shaw, J.J., “Marketing barriers in international trade”, Business Horizons, Distribution
May-June 1988, pp. 64-72.
25. Burt, D.N. and Doyle, M.F., The American Keiretsu: A Strategic Weapon for Global
channels in
Competitiveness, Business One Irwin, Homewood, IL, 1993. Japan
26. Johnson III, J.E., “Keiretsu: their effect on business and how American government and
business can confront them”, Brigham Young University Law Review, 1992, pp. 1155-72.
27. Hara, E., Takita, H. and Umesawa, M., “Keiretsu: what they are doing, where they are
heading”, Tokyo Business Today, September 1990, pp. 26-36. 35
28. Asano, K., “An assortment of distribution information systems”, in Czinkota, M. and
Kotabe, M. (Eds), The Japanese Distribution System, Probus, Chicago, IL, 1993, pp. 137-47.
29. Milgrom, P. and Roberts, J., Economics, Organization and Management, Prentice-Hall,
Englewood Cliffs, NJ, 1992.
30. Miles, G.L., “Unmasking Japan’s distributors”, International Business, Vol. 7 No. 4, 1994,
pp. 38-42.
31. Berman, B., Marketing Channels, John Wiley & Sons, New York, NY, 1996.
32. Hillkirk, J., “US exporters find bonanza in Japan”, USA Today, 10 February 1989, p. 5B.
33. Lin, H., “Marketing strategy of BMW in Japan: the key to success in Japanese market”,
Management Japan, Vol. 25 No. 1, 1992, pp. 27-31.
34. Stone, E., “Tricks of the Japan trade”, Asian Business, February 1992, pp. 20-5.
35. Conlan-Ayache, G., “European exports to Japan: successes and failures”, EIU European
Trends, No. 3, 1991, pp. 66-9.
36. Neff, R. and Harbrecht, D., “US insurers start making noise in Japan”, Business Week, 1
March 1993, p. 56.
37. Hardman, A., “American Sumo”, Financial World, 3 August 1993, pp. 42-3.
38. Walsh, M., “AFLAC comes home”, Forbes, 10 October 1994, pp. 80-81.
39. Dorney, R., “To sell in Japan, meet the Japanese”, Nation’s Business, February 1989, p. 10.
40. USA Today Research, “Detroit barely dents Japan market”, USA Today, 21 February 1994,
p. 3B.
41. “Distribution problems blamed for poor sales of US autos”, The Japan Times Weekly,
International edition, 23 September 1991, p. 17.
42. Morgan, J.C. and Morgan, J.J., Cracking the Japanese Market, The Free Press, New York,
NY, 1991.
43. Sandelands, E., “Penetrating the Japanese market”, International Journal of Physical
Distribution & Logistics Management, Vol. 24 No. 3, 1994, pp. 19-20.
44. Sullivan, K., “Direct mailing firms battle on”, Asian Business, August 1988, pp. 35-8.
45. Wongtada, N. and Zeiro, J.M., “Toward a conceptual model of Japanese consumer response
to direct marketing”, in Czinkota, M. and Kotabe, M. (Eds),The Japanese Distribution
System, Probus, Chicago, IL, 1993, pp. 191-208.
46. Dodwell Marketing Consultants, Direct Marketing in Japan, Tokyo, Japan, 1990.

View publication stats