Japans Sogo Shosha is a unique trade organization dealing with large range and quantities of products and raw materials. These trade organizations are a core of the national economy with millions of profits a year. Taking into account current trade corporation and nature of retailing business in the US, it is possible to say that trade companies like Sogo Shosha will become common in American but will fail in Europe. These differences are caused by different structures of retail nad trade business in the US and EU.
The most famous and large Sogo Shosha companies are Mitsubishi Corporation, Mitsui, Toyota Tsusho and Sojitz (Yoshino and Lifson 1985). These companies operate with consumer goods and raw materials, media and the Internet products, Finance and logistics. The aim and goals of the companies is to support large manufactures and deliver products to small traders. This type and structure of business meets the needs of the US market and its growth opportunities. Today, the new wave of competition will focus on information (Seth and Randall 2006). The USA experiences on a new wave of communications technology, interactive multimedia. Europe is far behind in this technology. Only a few companies such as Philips Electronics of the Netherlands and British Telecommunications are investing large amounts of money in this technology which can link televisions, computers and telephones (Johnsom and Scholes 2006). European research mainly is conducted in state-subsidized programs, focusing on long-term applications rather than immediate consumer products. The same situation occurred with the introduction of personal computers. The result is that European producers are the technological laggards, left with finding low cost alternatives to the market leaders (Drezner, 2006).
Sogo Shosha type of business will be readily accepted by large US retail companies. A large number of firms in the USA are involved in international retail operations all over the world, in the United States, Europe, Japan, Australia, and South Africa. Some are directly involved through joint ventures, acquisitions, and horizontal expansion in other countries. Others are not as directly involved because of the lack of resources or lack of a global orientation. They export their merchandise by selling to cross-border customers or enter into franchise agreements with overseas parties contracting out their retailing “formula” for a fee. There are still others who refrain from any such involvement with actual retail operations. They prefer to act as a hands-off investor in an ongoing overseas enterprise (Drezner 2006), Trading has long been regarded as an essential service function in a community around a given location. Unlike farm produce or manufactured goods, it is rarely perceived as an exportable item. However, when a retain operation is franchised by an overseas traders or when a trader enters into a management contract with a foreign traders, it does amount to an export of trade and financial services.
Globalization of business and integration demand a new type of organizations to meet needs of diverse consumers. A successful trader in its home country may have unique concepts of business and product innovation and a distinctive merchandise-mix. It may also have a cost advantage emanating from vertically integrated facilities of food processing and packaging. These “ownership-specific” advantages may motivate the trader to diversify geographically and exploit new market opportunity. It may not want to license or franchise the know-how or innovative concepts due to risks inherent in these alternatives of imitation and dissipation of business secret. The trader may prefer to internalize by acquiring existing operations or establishing new stores of its own in a foreign country where it may find some location-specific advantages, those of cultural proximity, added growth prospects, and better preparedness for unforeseeable environmental developments (Drezner, 2006; Kunio, 1983).
Being present in a host country enables a trader to maximize profits, realizing the full value of innovation and reducing the chances of exploitation by an overseas partner who could be a licensee, franchisee, or overseas party to a management contract. “The sogo shosha, with its unique access to essential resources, contributed greatly to the ever-quickening pace of import substitution in Japan’s industrialization” (Yoshino and Lifson 1986, p. 23). In the US, international traders implementing this approach believe in using a standard package of market offering in all overseas markets. They would sell precisely the same merchandise-mix, recreate as far as possible the same store ambience, and communicate with their customers using similar media vehicles regardless of country location (Drezner 2006). This requires a vertically integrated system of operation with sufficient control on manufacturing, design, promotion, and physical distribution. “the organization of a sogo shosha consists of many specialized units and subunits” (Yoshino and Lifson 1986, p. 106).
A Sogo Shosha type of organization will become common and survive in the US because not all traders have the recourses to implement the standard formula approach. There are many who decide to move overseas with a set of distinct market offerings in different parts of the world compromising with local needs. At stake for these traders is not so much the building of an undisputed global image as an opportunity to penetrate new markets and enhance overall financial performance. With this objective in view, a trader may decide to go for a strategy of adaptation. In this case, a Sogo Shosha organization will obtain a leadership and competitive position on the market. “Business may be handled for a period of time as an investment in experience. Given the nature of a sogo shosha’s business, it is not difficult to understand why complex capital budgeting procedures are not widely used” (Yoshino and Lifson 1986, p. 125). Some traders have no doubt failed to implement this strategy effectively. They will suffer when they try to apply retailing concepts they have used in home markets without ensuring their compatibility with the host country environment (Drezner, 2006). Most European countries restrict the hours of operation for traders. In essence this is an impediment to large-scale traders who depend on economies of scale of operation to sustain their business. Restricting operating hours is a major consumer problem for dual career couples, who must do their shopping on Saturday because stores close so early during the weekdays and are not open on Sunday. This was the first time ordinary shops in downtown locations did this.
A Sogo Shosha organization will not become common in EU because most EU consumers prefer to buy at small local shops and traders. A factor that makes retailing in Europe different from that in the United States is the lack of private transportation. Most EU department stores are in downtown locations, which are traditionally called the high street (Seth and Randall 2006). In contrast to EU, the US companies use partnerships between traders and manufacturers as result of intense competition. Concentration on core activities will continue with the supply pyramid becoming steeper. Companies will subcontract their production to the fewest possible, strictly selected groups of suppliers/. Power will move in favor of the trader rather than the manufacturer; this power shift comes about as the result of concentration and increases in scale in the distribution industry (Drezner 2006), Manufacturers are faced with a limited number of large customers with enormous purchasing power. Imports from low wage countries and the development of traders’ own labels also decrease the manufacturers’ power (Seth and Randall 2006). The food retailing sector in the Netherlands, Belgium, and the United Kingdom are all heavily concentrated; the top five retail chains in each of these countries account for more than 50% of the total turnover. Thus, a Sogo Shosha type of organization requires that: “the sogo shosha specifies channels for each class of decision, indicating who has what category of authority for each matter” (Yoshino and Lifson 1986, p. 132). This approach is feasible when the retailing know-how is in a fairly advanced stage in the host country and the international operator is better off not interfering with the management there. Such collaborations may seek to take advantage of foreign retailing know-how in diverse areas: buying, merchandising, catalog production, store display, selection of personnel, quality testing, and the like (Seth and Randall 2006). A trader may thus be able to internationalize its operations without having to acquire ownership in foreign countries. International involvements such as these have indeed been very helpful in improving the quality of retailing in Europe and other regions. As seen above, all types of involvement resulted in the flow of retailing know-how and benefited the host country in several ways. Manufacturers are expected to follow with their own, more differentiated product lines, but these manufacturers suffer by distance from the ultimate consumer (Seth and Randall 2006).
In sum, a Sogo Shosha type of organization will become common in the US because its economy and industries are consolidated around a consumer. Thus, EU countries will not accept this type of business because of legislation and transportation differences. Many investors in EU are satisfied with the location of the trader and with the economic and political environment in the country where it is located. A Sogo Shosha type of organization requires changes in industry structure and close interaction between manufactures and a Sogo Shosha organization.
Bibliography
Drezner, D. 2006, U.S. Trade Strategy: Free Versus Fair. Council on Foreign Relations Press.
Kunio, V. 1983, Shosha: the Vanguard of the Japanese Economy. Oxford University Press, USA.
Johnsom, J., Scholes, K. Whittington, R. 2006, Exploring Corporate Strategy: Text and Cases: Enhanced Media Edition. Financial Times/ Prentice Hall; 7 edition.
Seth, A., Randall, G. 2006, Supermarket Wars: The Future of Global Food Retailing. Palgrave Macmillan.
Yoshino, M.Y., Lifson, T. D. 1986, The Invisible Link: Japan’s Sogo Shosha’ and the Organisation of Trade. The MIT Press.