Executive Summary
It is surprising that the profitability of large retail booksellers in Japan is relatively poor with their sales being small compared to other countries in the world (Directory of Japanese publishing and bookselling, 1982). One of the major players in the market is the Saihan system that ensures market control by fixing the price of the products in the industry (Directory of Japanese publishing and bookselling: a guide to the market for British books, journals and literary rights in Japan (1st ed), 1978).
According to Farrell, this system deters the entry of new retailers into the bookselling industry, and has often been labeled as “anti-competitive,” and “collusive” (2005, p. 29). A comparison is therefore necessary with other countries and especially the United States to establish the validity and effects of the system to the bookselling market.
Introduction
The impact that the introduction of the Saihan system in Japan has had on retail booksellers is an issue that has aroused a never-ending debate. As Farrell states, there are advantages and disadvantages of having the system in Japan since the effects are different for the various companies (2005, p. 29). Some of the companies operating in this country include Bookoff and Amazon Japan both of which have recorded mixed returns with the system in place (Govindarajan, & Gupta, 2001, p. 5).
An evaluation of the effect that the dissolution of the Saihan system would have on the industry is also a spotlight of this paper with the focus being on the two companies. As a board member of Barnes and Noble, I will make an evaluation and feasibility study on the possibility of opening a series of bookstores in the country with the consideration of the Saihan.
Background
This paper focuses on the Japanese bookselling industry showing how competitors were able to establish their position within the industry. Japan is a country with a well-developed reading culture with most of her citizens having a habit of reading books of all genres (Directory of Japanese publishing and bookselling 1982). One would therefore expect the book Retail Markets in the country to be well established and profitable given that the culture is a positive one to this industry.
Problem Statement
According to the Directory of Japanese publishing and bookselling (1982), the bookselling industry in Japan has a history of diminished returns over the years. A major contributor to this hitch is the restrictive Saihan system (Brewer, Young, & Guisinger, 2003, p. 29).
The aim is therefore to investigate the feasibility of starting a branch of a multinational bookstore with evaluation of the effects of Saihan system on the other existing bookstores in Japan. The evaluation of the effects that the dissolution of the Saihan system would have on the Japanese retail Booksellers also takes pre-eminence in the essay.
Analysis of the Problem
According to Gurnsey and Henderson, Japanese bookstores are thought to have a prosperous development (1984, p.17). However, in this country, the booksellers suffer low profits with their companies mainly being small scale (Melville, 1999, p. 47). As Melville states, the cause of the problem is mainly the Saihan system (1999, p. 47).
Other factors that have been established as causes of the problems include the return policy and the lack of financial disclosure existing in these firms (Minowa, 1990, p. 97). The Saihan system establishes that the sale of books has to be under the set price with the publishers being responsible for the setting or fixing of the price (Bartlett, & Ghoshal, 1998, p. 19: Womack, 1990).
As a business rule, new entrants in a market have to use pricing in addiction to other factors to attract new customers and steal those being served by the older firms (Hatch, & Dyer, 2004, p. 29). Japanese retail booksellers are however denied this privilege by the Saihan system, as it is not possible for them to use price as a weapon in the process of competition (Farrell, 2005, p. 48).
The customers are also described as not being loyal to any of the retailers, as they find no difference in buying from them (Peng, 2001, p. 29). According to Farrell, the sale of the books in Japan is not dependent on a word of mouth, but rather on reviews and advertisement thus meaning that significant revenue goes to advertisement (2005, p. 48).
As opposed to other regions of the world where financial statements of the companies are readily available to the public, the retail bookselling firms in Japan are not good at disclosing their financial statements (Farrell, 2005, p. 48). The companies are therefore likely to produce figures that are not matching with the actual profits.
Another problem that Sirmon, Hitt, and Ireland explain is the return policy in the Japan bookselling industry (2007). According to them, retailers can freely return the unsold books to publishers for an equivalent amount of credit (Sirmon, Hitt, & Ireland, 2007). The implication of this strategy is that there is no need for stock inventory and that a bigger scale is necessary (Farrell, 2005, p. 57).
These are some of the problems that the industry is tolerating with the most significant being the Saihan system. The Saihan system would be illegal in many countries especially in the United States where a policy is in place to guide and control the existing industries. According to Prestowitz, one of the protective factors in the US is the constitution that allows the freedom of starting a profit making organization or company (1988, p. 42).
The companies’ act that is in place also ensures that would-be retailers are not deprived of their rights. The retail bookselling industry here is also free of any bonds that would restrict new entrants into the industry with the return policy being non-existent (Farrell, 2005, p. 36). This case may explain the performance of the industry.
Bookoff and Amazon Japan are some of the companies that have established themselves in the Industry (Farrell, 2005, p. 48). The entry of Amazon into the Japanese bookselling market was met with a big challenge (Farrell, 2005, p. 27). The Saihan provided the most of this challenge (Peng, & Heath, 1996, p. 498). However, Amazon Japan was able to make intelligent adjustments to bypass the system in a bid to ensure profitability.
According to Farrell, the company enabled its Japanese clients to purchase books via a series of outlets by paying them through credit cards (2005, p. 31). It also provided free shipping of books to the customer thus enabling the bypassing of the system. Another brilliant idea was the accumulation of points by its customers, which would then be exchanged for books (Farrell, 2005, p. 38).
The company also bypassed the Saihan by having a third party sales of books through the market sales it organized besides charging a commission on the sale of the books (Farrell, 2005, p. 38). This means that the company was not directly involved in sales, but was benefitting from them, thereby being not guilty as per the Saihan system.
Alternatives and Criteria Selection
The main consideration for a company to invest in Japan is respect to the set laws and guidelines. The Saihan system and the related laws are just but a few of the examples. The other requirements for a company to invest in the country’s bookselling industry are cautious evaluation of the market dynamics and the existing competition.
Since there is no single company that can claim dominance in the retail bookselling industry in Japan (Peng, & Heath, 1996, p. 498), Barnes and Noble stand a good chance of starting on a profitable path. All that the company requires is the financial input that is directed towards the marketing of its products (Peng, & Heath, 1996, p. 498).
The company also needs to learn from the previous attempts to penetrate this market. In fact, a good idea would be to use the experience of Amazon Japan. As Yeung states, there is a need to come up with an effective strategy when setting up a business or subsidiaries with the replication of ideas that have worked for other businesses being also accepted (2006, p. 59).
The company should therefore attempt to start marketing criteria that are close to that of Amazon Japan in an effort to incorporate a strategy that is focused on going round the Saihan system. Barnes and Noble should also diversify on their products in this market.
The creation of many products has been shown to be a way of obtaining customers’ loyalty, as they can easily get what they are looking for within one roof (Yeung, 2006, p. 17). The formulation of a competition as a marketing strategy where customers would accumulate points and or use them to purchase the commodities is also one of the ways of enhancing profitability (Yeung, 2006, p. 17).
Recommendation
From the discussion of the effects of the various factors affecting the retail booksellers in the Japanese market, a number of recommendations emerge. These are related to the theories put forward on marketing and consumer dynamics (Peng, & Heath, 1996, p. 523). A foremost recommendation is the dissolution of the Saihan as a component of the retail bookselling industry in the country.
This step would increase competition between the companies promoting profitability and or increasing sales (Peng, & Heath, 1996, p. 527). With the dissolution of the Saihan in the country, a number of effects would be felt in the industry and the financial market in Japan in general.
As stated above, one of the effects would be the development of stern competition between stakeholders in the industry. Competition is a good thing for businesses, as it encourages them to improve efficiency and customer service (Farrell, 2005, p. 67). On the other hand, the retail market bookselling in Japan has largely been in existence with no precise member having an edge over the other due to the restrictions imposed by the Saihan system (Farrell, 2005, p. 67).
With the dissolution of the system therefore, some of the companies would have an advantage over the others depending on their financial base. This case would mean that the smaller firms are kicked out of the market, as they would not be able to offer a competitive pricing for the books (Farrell, 2005, p. 67).
Another possible recommendation is the institution of free deliveries and shipping from warehouses in the United States. This strategy would be another way of promoting loyalty and profitability for Barnes and Noble (Acedo, Barroso, Galan, & Ali, 2006, p. 630). The relocation and opening of a branch in this country requires a careful study of the market.
No company should be in a hurry to do so without doing the necessary groundwork. This argument is also supported by Barney (2001, p. 23) who says that the company should therefore evaluate the consumer profile and preference before setting up a branch here.
Action plan
A possible action plan for the company is considered after the discussion of the Saihan and its effects. A personal recommendation is that Barnes and Noble should not invest in the retail bookselling market in Japan in the current prevailing circumstances. The major deterrence for this decision is the Saihan.
However, with the dissolution of the Saihan, this decision would change to facilitate the opening of the branch. Another plan would be to set up a strong marketing team. As suggested by Kotler, for any business to be successful even in the absence of the Saihan, there needs to be an effective marketing plan (1986, p. 17).
Conclusion
In conclusion, the Saihan system closely monitors and controls bookselling retail market in Japan. Some of the problems that have compounded to produce the low profits and sales experienced in this industry have also been discussed with appropriate recommendations. With the dissolution of the Saihan system, a personal consideration would be to set up a branch for Barnes and Noble in the country.
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