Regional Free Trade Zones

In recent years, we have seen the growth of regional free-trade zones or economic communities - groups of nations organized to secure common goals in the regulation of international trade. One such community is the European Union, which aims to create a single European market by reducing physical, financial and technical harriers to trade among member nations.7

Other free-trade communities exist. In fact, almost every member of the WTO is also a member of one or more such communities. And, of the one

World-Class Marketing: The Japanese

Few dispute that the Japanese have performed an economic miracle since the Second World War, In a very short time, they have achieved global market leadership in many industries: motor vehicles, watches, cameras, optical instruments, steel, shipbuilding, computers and consumer electronics. They have made strong inroads into tyres, chemicals, machine tools and financial services, and even designer clothes, cosmetics and food. Some credit the global success of Japanese companies to their unique business and management practices. Others point to the help they get from Japan's government, powerful trading companies and banks. Still others say Japan's success was based on low wage rates and unfair dumping policies.

In any ease, one of the main keys to Japan's success is certainly its skilful use of marketing. The Japanese came to the United States to study marketing and went home understanding it better than many US companies do. They know how to select a market, enter it in the right way, build market share and protect that share against competitors. Having practised and seen how well it works in the US market, the Japanese came to Europe with the same game plan.

Selecting markets. The Japanese work hard to identify attractive global markets. First, they look for industries that require high skills and high labour intensity, but few natural resources. These include consumer electronics, cameras, watches, motorcycles and pharmaceuticals. Second, they prefer markets in which consumers around the world would be willing to buy the same product designs. Finally, they look for industries in which the market leaders are weak or complacent.

Entering markets. Japanese study teams spend several months evaluating a target market and searching for market niches that are not being satisfied. Sometimes they start with a low-priced, stripped-down version of a product, fike cameras and radio receivers. At other times, they start with a product that is as good as the competition's but priced lower, such as radios and televisions, or with a product of higher quality or incorporating new features, as in the case of cars and photocopiers.

The Japanese line up good distribution channels in order to provide quick service. They also use effective advertising to bring their products to the consumers' attention. Their basic entry strategy is to build market share rather than early profits, and they are often willing to wait as long as a decade before realizing their profits.

Building market share. Once Japanese firms gain a market foothold, they begin to expand their market share. Money is poured into product improvements and new models so that they can offer more and better products than the competition does. They spot new opportunities through market segmentation, develop markets in new countries, and work to build a network of world markets and production locations.

Protecting market share. Once the Japanese achieve market leadership, they become defenders rather than attackers. Their defence strategy is continuous product development and refined market segmentation. Their philosophy is to make 'tiny improvements in a thousand places'.

Recently, some experts have questioned whether Japanese companies can sustain their push towards global marketing dominance. They suggest that tfie Japanese emphasis on the long-term market share over short-term profits and their ability to market high-quality products at low prices have come at the expense of their employees, stockholders and communities. They note that, compared to western firms, Japanese companies work their employees longer hours, pay their stockholders lower dividends, and eontribute less to community and environmental causes. Other analysts, however, predict that Japan's marketing success is likely to continue.

In America and Europe, western firms that have survived the Japanese onslaught are fighting back by adding new product lines, pricing more aggressively, streamlining production, buying or making components abroad and forming strategic partnerships with foreign companies. With the help of a weakened Japanese economy, a soaring yen and strong political trade pressures, western companies are winning back market share in industries ranging from automobiles and earthmovers to semiconductors and computers. Many companies are also gaining ground in Japan.

US firms, for example, hold leading market shares; Coke leads in soft drinks (60 per cent share), Schick in razors (71 per cent), Polaroid in instant cameras (66 per cent), and McDonald's in fast food. Procter & Gamble markets the leading brand in several categories, ranging from disposable nappies and liquid laundry detergents to acne treatments.

A growing number of European companies have successfully penetrated the daunting Japanese market. Success, however, has not been limited to large companies like Glaxo or those with well-established marques. For example, Teknek Electronics, a small British company which makes a precision machine that cleans sheet materials in the printed circuit industry, successfully entered the Japanese market despite its chief competitor in the market being a Japanese machine. Solid State Logic, a relatively young British company that makes professional audio equipment, has made significant progress within 20 months of setting up its subsidiary in Japan. In the consumer market, Foseco, a speciality chemicals maker, sold its Sedex filters at a loss for one year in Japan while it set up local production to meet intense domestic price competition. It emerged from the trauma with 55 per cent of the Japanese market, and a reduction in production costs that enabled it to bring its own sales price down by 30 per cent. Foseeo Japan now sells three times as many different types and sizes of Sedex filter as any Fosceo company.

The success of western companies in Japan stems largely from the firms' willingness to meet the Japanese market on its own, highly competitive terms. The key ingredients for success are: not treating the Japanese market as any other market; a high-L]uality or latest technology product; a high level of commitment to - invariably meaning a high level of investment in - the market; an ability to respond efficiently to specific market segment needs; and an understanding of the specific business culture. For most consumer products, tying up with a local distributor or partner is critical. Understanding the complex distribution system with its layers of wholesalers, and having the patience to handle it, are crucial in Japan because it is difficult to get products on the shelves by directly approaching the retailer. A strong marketing plan, encompassing intensive and aggressive advertising, and close co-operation with wholesalers and retailers, is also essential, not only to reach and impress the consumer, but also to convince the wholesaler and the retail buyers that the firm is serious about its product

In fact, very similar ingredients are found in western and Japanese overseas marketing success recipes. These all point to one outstanding dimension - superior marketing - as reflected in the firms' focus on market needs, sustained commitment to product and market development, and environmental, particularly cultural, sensitivity.

This suggests that the broad principles for success in international marketing are not country specific, but readily transferable to other national players.

SOURCES; See Peter Doyle, John Saunders and Veronica Wong, 'Competition in global markets: a case study of American mid Japanese competition in the British market', Journal of International Business Studies, 23, ,1 (1992), pp. 419-42; Miehiyo Xakamoto, 'British companies reap benefits (it Japanese markets'. Financial '/fines (8 May 1991), p. 6; Miehiyo XakamoEO, 'Use the system, win shelf space', Financial Times (16 February 1994), p. 19; Philip Kotler, Liam F;ihey and Somkid Jatusripitak, The Neva Competition (Englewood Cliffs, NJ: Prentiee Hall, 1985); Vernon R. Alden, 'Who says you can't crack Japanese markets?', Harvard Business /Jews* (January-February 1987), pp. 52-6, Ford S. Worthy, 'Keys to Japanese success in Asia', Fortune (7 October 1991), pp, 157-60; 'Why Japan must change', Fortune (9 March 1992), pp. 66-7.

Income distribution: Even poorer countries may have small but wealthy segments. Although citizens of Budapest. Hungary have relatively loiv annual incomes, well-dressed shoppers flock to elegant stores like this one, stocked with luxury goods.

hundred or so free-trade arrangements listed by the WTO, over half have come into being in the 1990s (see Marketing Highlight 5,2).

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