country markets and industries opportunities

8/8/2019 Country Markets and Industries Opportunities

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FOREIGN TRADE UNIVERSITY

FACULTY OF BUSINESS ADMINISTRATION

Title: Japanese fashion market

Unit Code: 01

Unit Title: International Business

Lecturer: Duong Thi Hoai Nhung (MBA)

Word count: about 3000 words

Due Date:

Date Submitted: 20/09/2010

Student Name: T V n Tng

Student Number: 085 205 0045


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Executive SummaryThe purpose of this research is to provide you with basic information about the Japanese fashionindustry in order to broaden knowledge for the Vietnamese fashion companies planning to enter the Japanese Market. The Japanese economy is viewed as being on its recovery stage. Althoughconsumers are trying to save more money to prepare for an unstable future, they also have astrong desire to spend money on fashion. The Japanese fashion market has very unique featurescompared to that of other countries.

1) The real estate-related costs in Japan are high and the sales per square feet have beenhighest in the world.

2) Most of the Japanese retail fashion business stands on consignment. As a result theretailers do not have the decision making power to merchandise and determine the retail

price.

3) The market size for people in their 20s is the largest. This is because most of them stilllive with their parents and dont need to pay living expenses. The largest market for mostcountries is in the 40year old age group.

4) The Japanese are very loyal to foreign prestigious fashion brands such as Louis Vuittonand Gucci. The sales of these companies have been growing steadily with support from

young consumers.

5) Japanese consumers are sensitive to trend cycles in the international fashion market.

6) They are significantly influenced by Fashion Magazines. The Japanese fashion markethas a big potential for the Vietnamese Fashion companies. At the same time it is easy todrop out from this highly competitive market. It is imperative for Vietnamese fashioncompanies to make clear strategies for entering the Japanese market.


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TABLE OF CONTENTS

Title Page

E xecutive Summary

Table of Contents

List of Figure and Table


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Table 1.4

Name of city

Inthousands

Tokyo 8,134.60Yokohama 3,426.60Osaka 2,598.70

Nagoya 2,171.50Sapporo 1,822.30Kobe 1,493.30Kyoto 1,467.70Fukuoka 1,341.40Kawasaki 1,249.90Hiroshima 1,126.20

Kitakyushu 1,011.40Sendai 1,008.10*2002

Table 2.1

US $ ShareWomen's Clothing $509.97 58.10%Men's Clothing $277.64 31.70%Children's Clothing $89.50 10.20%

Total $877.10 100.00%*2006

Source: the Family Income and E xpenditure Survey by Statistics Bureau of Ministry of PublicManagement, Home Affairs, Posts and Telecommunications

Table 2.1.2

Average Hous eh olds Incom e 531,521 574,919 629,593 722,767 914,397

Clot he s and footw ear expe nditu re 7.00% 7.40% 7.50% 8.30% 9.70%

*per mont h *2006


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1.Hypothetical business scenario

1.1 Product: Clothing and apparel

Various kinds of products in fashion market including Tops & Shirts, Sweats & Jackets, LegWare and Accessories.

1.2 Business

In the last 10 years, Vietnamese fashion companies have achieved impressive successes indomestic fashion market. It is obvious that we have potential to produce more and increase

profit; therefore, a new plan to expand market is very necessary for our fashion industry.

For the long term, we should try to keep a good position in export fashion market in the world.This maybe an ambitious plan for the future. Howerver, in the short term we can focus on nearbymarkets and Japan is assessed as one of the most potential export market in the next 5 years.

1.3 Market overview

The Japanese fashion market maintains its position as one of the largest in the world and has been facing important changes. These changes occurred thanks to many phenomena such as thegreater utilization of the internet, which allows anyone to have access to precious informationavailable at homepages of designers and apparel brands and facilitating access to foreign

products. Specifically in Japan, because doubts about the future of the economy, have madeJapanese consumers become increasingly cost and quality conscious and constantly scanning for "new" and "different" merchandise.

The shear size of the market and the changes that are taking place constitute an opportunity for the Vietnamese clothing industry and principally for those companies that have already begun a

phase of consolidation of their image in both E urope and the United States. E valuated at over US$ 5 billion, the Japanese fashion market will therefore be receptive to those Vietnamesecompanies interested in offering their apparel in the country.

Competition in the Japanese market, nevertheless, is intense and companies that choose to place their products in that country should be aware that Japanese buyers prefer to maintain long relationshipswith vendors rather than one point buying. Typically, prospective clients will start with a small order to verify the reaction of the buyers and may eventually increase their orders. It is therefore highlyimportant to frequently travel to Japan to present new lines of apparel to demonstrate a determinedstrategy to become a player in the market.


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1.4 Principal characteristic of Japan

Population

Japan has a population of 126.92million (2002), half that of the United States. It is in eighth place

after China, India, the United States, Indonesia, Brazil, Pakistan and Russia.

The population is greatest along the Pacific seaboard where the weather is mild and the transportationand industrial facilities are most highly developed. In fact, approximately 70% of the nations peoplelive on the strip of coastal plain between Tokyo and the northern part of Kyushu. Advancingindustrialization has been accompanied by a population shift toward the large cities and a marked

population decline in the agricultural areas.

Table 1.4 shows twelve cities in Japan with populations of over one million.

Japanese standard of living

Japan ranks top class in investment and consumption with rapid economic growth. However statisticsgive a mixed picture of the Japanese standard of living. In one report it is on a par with or evenexceeds western standards, and in other respects such as social capital and housing, they lag behind.The average annual income per household (two persons or more) was about 6.73 million yen (US$62,447) in 2000. Ownership of consumer electronics, automobiles, and other durables is widespread,and Japanese life is full of affluence and convenience. However the social capital such as pavedroads, sewer system and so on, is far below E uropean or American standards.

GNP

Japanese industrial structure changed dramatically after World War II, first from agriculture tomanufacturing, and then from manufacturing to services. In terms of percentage, agriculture fell from20% in 1955 to 2% in 1999, manufacturing fell slightly from 33% to 29%, while services grew from47% to 69%.

This shift to services is common to all industrial countries. Rising incomes have enabled people tomeet their basic food, shelter, and clothing requirements and to diversify demand into cultural,educational, recreational, and other non-essential areas. In conclusion, we can see that GNP andCapital income in Japan are very high compared to other countries.


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2.Country markets and industries opportunities

2.1 Japanese clothing market

Market size

Japan remains the worlds second largest clothing market after the United States. Although thereare no official statistics showing the Japanese clothing market size, commercial sales surveysdone by Ministry of E conomy, Trade and Industry (M E TI), give a good indication on the size of the Japanese apparel market. The surveys detail the retail sales of clothing and accessories. Themost recent data released was for the Japanese Fiscal Year 2004 (April 1, 2004 March 31,2005) and totaled 16.4 trillion or $143 billion.

Household spending on womens wear accounted for approximately 60% of the total. As such itis estimated that the womens wear market in Japan was valued at 9.8 trillion or US$ 85.2

billion in FY 2004.

Table 2.1.1 shows details the average spending on clothing per household.

Market growth

According to 1995 trade statistics compiled by the Ministry of Finance, the value of importscame to 1.5 trillion yen (14.3 billion dollars at 106 yen to the dollar) and exports, just 23.3 billionyen (220 million dollars), for a ratio of 65 to 1. Just four years earlier, in 1991, the ratio stood at27 to 1, providing a clear indication of the staggering pace at which imports have been rising.The Japanese ratio far surpasses that of such countries as France, where imports are 1.9-timeshigher than exports, Germany, where they are 3.3-times higher, and the United States, wherethey are 7.0-times higher.

Imported clothing used to fall into two main categories: quality name brands from the UnitedStates and E urope and low-priced goods from other Asian countries. The surge in Japan'sclothing imports over the last few years has come on the heels of the yen's rise against the dollar,which has further widened the gap between domestic and foreign labor and production costs.Asian-made goods, which account for most of the low-priced items, have grown even cheaper,and famous U.S. and E uropean brands, which used to cost two or three times more thancomparable Japanese labels, are now just a third or half more. The reduction in the retail pricesof these goods has made them even more attractive to consumers, and the result has been afurther expansion of imports.

Customer quality


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Japanese women in their upper teens to late 40's are generally very fashion-conscious andinterested in making themselves look as beautiful and fashionable as possible. In addition, theaverage age at which Japanese marry keeps rising. As a result, there are more singleworkingwomen who have a lot of flexibility on how to spend their incomes. According to "theSingle Workers' Household Receipts and Disbursements Survey" by the Ministry of Public

Management, Home Affairs, Post and Telecommunications, the average monthly expenditure onclothing and footwear in 2006 by single working females younger than 35 was 13,768(approximately $120).

This accounted for nearly 8% of their total living expenditure and is nearly double the averagemonthly rate 7,901($68) spent by households on this market segment category. This can beattributed in some part to the fact that many single women often live with their parents and as aresult dont have to pay for rent or food expenses.

The Relationship between Capital Income and Consumption

Table 2.1.2 shows that the more income they can get, the higher percentage of clothing theyconsume.

2.2 Competition

Intensity of rivalry

As said at the beginning of this report, the Japanese market is very competitive. Japanesemanufacturers are major competitors for U.S. suppliers although Chinese made apparel isdominant in the market. Japanese brands many times have their products produced in China.Japanese companies have several advantages over foreign suppliers in the market. For example,domestic companies can respond more quickly to fashion trends and produce according toJapanese size standards. As a result, their products are likely to fit Japanese consumers better than foreign products.

E ntry barriers

Product from foreign suppliers usually goes direct to retail consumers or via animporter/distributor. Though consignment sales still exist at some Japanese department storesand other mass merchandisers, this option is not available to foreign suppliers. A Japaneseimporter, however, may be able to arrange consignment sales with their customer base. Finally, itis still common practice in Japan for small mom-and-pop stores to buy on a cash & carry basisfrom wholesalers but not directly from manufacturers.

It is still important to show actual samples to buyers in the clothing industry. As a result,exhibiting at trade shows is a necessary first step to entering the market. Vietnamese companies


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can also target Japanese buyers at major Vietnamese domestic trade shows as many of thefashion buyers from Japan travel to industry trade shows in the Vietnam.

2.3 Resources

Japan has a very advanced and well-maintained infrastructure, which undergoes regular upgrading and expansion. Both the private and public sectors undertake various infrastructural

projects and operate their respective services.

Japan has a very extensive and modern road network. It consists of 1,152,207 kilometers(715,981 miles) of highways, of which 863,003 kilometers (536,270 miles) are paved. Theyinclude 6,114 kilometers (3,799 miles) of expressways. The number of motor vehicles increasedfrom 70,106,536 in 1995 to 73,688,389 in 1999. Major development projects to expand theJapanese highway network include a $32-billion project for the construction of a second Tomei-Meishin E xpressway, connecting Tokyo and Kobe via Nagoya. The length of Japan's railways is23,670 kilometers (14,708 miles), more than half of which is electrified. Japan is famous for its

high-speed trains.

As a country surrounded by water, Japan has developed a very extensive and modern seatransportation system. It includes many ports and harbors such as Akita, Amagasaki, Chiba,Hachinohe, Hakodate, Higashi-Harima, Himeji, Hiroshima, Kawasaki, Kinuura, Kobe, Kushiro,Mizushima, Moji, Nagoya, Osaka, Saki, Sakaide, Shimizu, Tokyo, Tomakomai, and Yokohama.Japan has a very large merchant-marine fleet, which is a necessity for its international trade andfor ensuring an uninterrupted arrival of raw material, fuel, foodstuffs, and other necessary

products. The fleet comprises 662 ships with a total capacity of 13,039,488 tons.

2.4 Incentives

E xporters have often found Japan a challenging and even difficult country to trade with, partly because of its trade restrictions. However, recent moves by the government have sought toexpand import programmes, and will eliminate some of the difficulties exporters haveexperienced. E ffective April 1990, Japan introduced a comprehensive package of importexpansion programmes. The government has used its highly successful exporting strategies asthe basis of the new import policies and programmes, with the ultimate aim of establishing Japanas an import superpower. The Ministry of International Trade and Industry (MITI) and the JapanE xternal Trade Organisation (J E TRO) are the two main organisations responsible for implementation of these policies.

The Japanese programmes fall under the following broad categories: tax incentives, eliminationof tariffs, expanded budgets for import promotion, expansion of import loans and miscellaneous

programmes. Now, we can see that Japan is open to imported apparel and doesnt havesignificant tariff or non-tariff barriers to imported clothing.


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3. Country risk analysis

3.1 Political risk

Extremism in Japan

On the surface, Japan looks like a politically stable country with no fear of civil conflict. Thecountry has recently implemented mandatory finger-printing of foreigners when entering thecountry as part of their 'Anti-terrorism strategy.' However, the truth remains that all terrorismattacks to date have been home-grown. Below the surface of this orderly country, there are anumber of radical political organizations which although marginal, have a record of violentactivities. In the 1970s, a left-wing extremist group called the Japanese Red Army was rampantin its mission to cause instability, overthrow the Japanese government and monarchy and installa communist regime by starting a revolution. It was also one of the first groups to be declared asa terrorist organization by the US, partly as a result of its close ties with the Popular Front for the

Liberation of Palestine.The North Korean threat

Japan's troubled relationship with North Korea means there is a small but significant risk of Tokyo being the target of nuclear missile attacks. In 2006, North Korean missiles actuallydropped down in the Sea of Japan and this was taken as "provocative behavior" by the Japanese.It used to be thought that the North might hold Tokyo nuclear hostage in the event that it forciblytried to reunite with the South--a possible scenario given that the Korean War is not officiallyover. In more recent years, the relationship between the two Koreas has improved but bilateralties between Pyongyang and Tokyo remain icy. Tensions concerning abductees and textbooks

threaten to cause a further deterioration of relations. Moreover, 'Juche' the political ideology of the North Korean state is strongly anchored in anti-Japanese sentiment.

E ntrapment in Taiwan Straits conflict

Taiwanese President Chen's support for a referendum next year on whether Taiwan should enter the United Nations under the name Taiwan, a move slammed by Beijing and Washington asneedlessly provocative, is the latest example of rocky relations between Washington and Taipei.Bush's efforts have largely been to decouple the US from the Taiwan Straits conflict. However, if US-China relations deteriorate, the most likely arena for a conflict would be across the TaiwanStraits, on Japan's southern doorstep. Given the US bases in Okinawa, and the fact that Japan'ssecurity relationship with Beijing is shaped by Washington, there is a risk of entrapment if anyconflict arises.

Island disputes


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An ongoing headache for Japanese security advisors are the island disputes with Taiwan, China,South Korea and Russia. So far, the problem has remained a relatively peaceful issue but shouldthe disagreement gain momentum, Japan could be at risk of involvement in a military conflict.

3.2 Economic risk

Recently, Japan economy surges but deflation risk remains. Before 2010, Japan remained aheadof China as the world's number two economy in terms of nominal GDP. Howerver, latest data in2010 shows that it lost the position it has held for more than 40 years for China.

Soaring welfare costs for a greying population and deflation continue to burden Japan, as fallingconsumer prices encourage consumers to defer purchases in the hope of further price drops.After decades of heavy stimulus spending and declining tax revenues, Japan has a public debtmountain bigger than any other industrialised nation, expected to hit 200 percent of grossdomestic product in the next year.

The Japanese economy has been in the doldrums more or less continuously for the pasttwo decades, and this long-term recession has imposed at least three costs on Japanesehouseholds including a decline in their standard of living; an increase in the risks anduncertainties concerning how to make ends meet, employment, old age, etc.; and an increase inincome inequalities.

3.3 Competitive risk

Japan is an example of influence markets in which private interests buy or rent influence over relatively specific policy outcomes within a strong state.

Since the years of the bubble economy and the ensuing economic and political turmoil after the bubble burst, political corruption in Japan has become a major concern for the general public, for the political and business elite and for scholars interested in Japan. In recent years, the frequencyof corruption scandals in Japan has certainly increased. To gain an overview, a list of arguablythe most serious corruption scandals of the post-war period is presented below.

The Shipbuilding Scandal of 1954The Lockheed Scandal of 1976The Recruit Scandal of 1988-89The Kywa Affair of 1991The Sagawa Kybin Scandal of 1991-1993The Tax E vasion Scandal of 1993 surrounding Kanemaru ShinThe Genecon Corruption Scandal of 1993The Skaiya Scandals of 1997The Scandals of 1996-1998 within the E lite Bureaucracy

3.4 Operational risk


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There is no denying that Japan is an energy resource poor country and any disruption to theimporting of energy sources to Japan would be crippling. Regional conflicts, superpower militaryintervention, regime change or destabilization could all cause a major disruption in Japan'senergy supply.

90% of Japan's oil supply comes from the Persian Gulf. The Strait of Hormuz is one of theworld's most strategically important areas with Iran at the north coast and the United ArabE mirates to the south. According to the Japanese government, political instability and terrorismin the Middle E ast constitute two of the biggest threats to Japan's energy supply. In October 2002, Al Qaeda attacked an oil tanker off the Yemen coast, demonstrating the terrorists' ability toharmfully affect a country's economy. Insurance rates tripled after the attack, thus causingeconomic instability.

On top of this, some analysts suggest that instability in the region will cause other MiddleE astern oil producers to try and keep prices high. Shipping company Kawasaki Kisen (K-Line)said its net profit for 2006 was 41% lower than in 2005, largely due to the higher cost of fuel.

According to the Jamestown Terror Monitor, "very clearly, an oil price rise of that magnitude ina shipping firm will also have a significant impact on the Japanese economy as a whole."

Conclusion

From this report we can assess that Japanese fashion market has high market & competitivesopportunities. It has a large market size, potential market growth and very good customer quality. For the country risk, even thougth its economic stagnation over the past decade, politicalcorruption or some political disputes with Korea, China or Russia; Japan still to be more stable

political economic comepares to the other nearby countries like Thailand or Indonesia. Manyforeign companies have even increased investments to promote sales in this country.

In short, we can say that Japanese fashion market has high market & competitives opportunitesand acceptable country risk. Therefore, this is a potential market for Vietnamese fashioncompanies to expand business and raise profit in the next 4 to 5 years.


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Reference List

Ministry of Economy, Trade and Industry: http://www.meti.go.jp/

Japanese Customs Agency website: http://www.mof.go.jp/english/tariff/tariff.htm

Japan External Trade Organization (JETRO): http://www.jetro.org/

Japan Textile Importers Association: http://www.jtia.or.jp/index.htm

E ncyclopedia of the Nations website: http://www.nationsencyclopedia.com/economies/Asia-and-the-Pacific

E ntrepreneur website: http://www.entrepreneur.com/tradejournals

Wikipedia: wikipedia.com

Microsoft encyclopedia E ncarta

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