Proposed Business Plan for a Trader Joe’s chain in JapanIntroduction
The Trader Joe is a chain of privately owned supermarkets based in America. Trader Joe’s chain was founded in 1950s by a German-American, Joe Coulombe as a simple grocery store (www.traderjoes.com). However, the name Trader Joe’s was not adopted until late 1960s. For the past six decades of operation, the chain has grown to become a household name in America. Today, Trader Joe’s ranks among the famous privately run supermarkets. By the end of 2014, the Chain maintained 418 different stores distributed across American states. However, more of its chains are concentrated in California, where the business is headquartered. Although Trader Joe’s operates like a typical grocery store, it is unique in its products and services. For instance, the Trader Joe’s stores stocks only about 4000 items while an average store sells close to 50,000 different things. Additionally, 80% of the Trader Joe’s stocks bear the company’s brand mark (www.traderjoes.com). For this reason, traders Joe’s identify themselves as a supermarket that sells self-brand. Despite the restricted scope of the company’s products, Trader Joe’s has emerged as one of the favorite supermarkets for the American consumers. According to a study by the Market Force Information, for example, Trader Joe’s emerged as America’s favorite grocery in 2013. The majority of the interviewed Americans expressed satisfaction with Trader Joe’s quality of services as well as their pricing rate. The customer’s satisfaction is also depicted by the brands sales turnover. For instance, a survey done in 2008 indicated that the stores recorded the largest sales volume per square foot of the store. Undoubtedly, the company is performing exemplary well in the American market. Is it not time to expand to the foreign market? The following is an elaborate proposal for Trader Joe’s store in Japan.
Trader Joe’s is a household name in America. It enjoys a significant market share in areas in which the stores has high presence such as Southern California. In such a location, the chain’s stores are overly concentrated to an extent that they are enjoying optimum growth. This means that their room for expansion, especially within California is restrained. While there is still room for growth in America, the brand faces stunning completion from larger stores such as the Walmart, Kroger and many more. For this reason, this paper proposes that the store should consider expanding their reach outside America. As elaborated below, Japan has been identified as the most suitable country for the company to open a subsidiary.
For years, Trader Joe’s has created a brand name. It is one of the few supermarkets that concentrate on a relatively few items, the majority of which bears the company’s brand. In addition, Trader Joe’s sells only the commodities that are appealing to the customers. For instance, their major regulating idea is that if an item takes long on their shelves, then the item is not desired and hence is removed from the stock. These principles have worked for the company, making it get to its position today. For this reason, it is imperative for the same principles to be observed in the upcoming Japanese store.
The idea of entering the Japanese market did not start in a day. It has taken a rigorous planning process and comprehensive consultation with the top management. The planning process involved delegating a team of dedicated staffs to study and analyze the company’s chances in the foreign market. They also examined the present status of the company in terms of our resources, including financial and human resources. According to the report tabled by the company’s development team, Trader Joe’s is in a position to enter into the Japanese market.
Trader Joe’s products are unique and high quality. For instance, the company’s branded food products are increasingly appealing to the American people. Based on the culture of the Japanese people, the development team is optimistic that the products will also sell in Japan. As a new brand, however, Trader Joe’s is likely to face some challenges before it manages to win customers loyalty. The possible challenges are listed, each with an adequate strategic solution.
The proposed Japanese store will be governed in a similar manner that the local stores are managed. That is; the store will have a general manager in charge of all its operations and other assistant directors in charge of various sections such as customer service, Information Technology and so on. The company acknowledges that the entry to a foreign market is a critical stage. For this reason, the top management delegates a team of business development strategists amongst the Trader Joe’s team who will oversee the start of oversee the start off the new branch until it starts normal operations. The team includes the company Head of Sales and Marketing Department, the Human Resources manager, the Finance Manager, and the Head of Operational Services (OSE). They will also work hand in hand with other staffs such as the Information Technology Specialists. These individuals are highly skilled and have been involved in various international business transactions. They have also played active roles when the company was opening various local branches. Additionally, each of the team members has recorded a success in their departments, giving the company enough reasons to trust them with the critical responsibility of traversing foreign market.
Although the company delegates a specific team to oversee the entry of TJ in Japan, the team will liable to the head office in America. For the initial stages, TJ in Japan will operate as one of the 418 branches in America. For this reason, the head manager in Japan will be answerable to the company’s director in California. They will also be bound by the company’s policies and any upcoming regulations passed at the head office.
Following a comprehensive study of the Japanese market, the business development team has established the organization structure for the store. In essence, the team identified the difference between the American and the Japanese market. The difference helps in identifying the changes from the custom TJ business behaviors that will be necessitated by the new market. These include changes to be adopted in the pricing strategy, marketing, and packaging. Identification of the necessary changes require the team to assess the behaviors of the prospective customers to learn what they value from the service providers.
Although the preparation plans are still underway, the proposed store is scheduled to open in 1st June 2015. The business development team is anticipated to have completed all the preparation and will be ready for implementation. The upcoming store is scheduled for Nagoya city, the third largest City in Japan. While Tokyo may have appeared like the most suitable city due to the high number population, our business development team settled on Nagoya-based on our products, customer behaviors. Our target customer’s cuts across all the population since our store will stock goods consumable to every individual.
Among the four members of the business development team, the finance manager will be in charge of the store control. This involves maintaining accurate records for the business’ performance and updating the head office as regularly as possible. He will also be in charge of examining the success of the new branch and proposing relevant changes based on the performance.
The business culture in Asian countries is slightly different from that of America. For instance, the economic and political status of Japan differs from that of America. Additionally, business’ legal requirements in Japan may not match that of America. For this reason, the business development team have explored and compiled some of the peculiar factors that are likely to influence the Japanese Trader Joe’s.
The immediate factor considered in the decision to enter Japan is the country fast growing economy. The rate of growth of the economy is a clear indication of the amount of money in circulation and hence the amount of money available for consumers to spend. Ordinarily, a stagnant economy reveals that businesses in the area are less productive which corresponds to low Gross Domestic Product. For these reasons, the TJ group gave the economic performance of Japan a priority in their analysis. They did not only look at the current and near future of the economy but also on the historical records of the country.
According to the International Monetary Fund, Japan economy is the third largest after the US and China. In 2013, for instance, the country registered a $36,899 per capita GDP, a value that shows a relatively stable economy (Malcolm, 2013). Similar to the American economy, the Japanese economy is also forecasted on a quarterly basis, making it easy for business to compare their performance against that of the nation. While assessing the Japanese economy, the TJ team noticed that the Japanese GDP is measured in dollars. Although the country’s currency is Yen, there is a high chance that many of the country’s major transactions are carried out in dollars. The usage of the dollar is a boost to the American-based investors since they will be using home country currency. This reduces the burden and complexity of currency conversion, bearing in mind that Yen is a relative volatile currency.
Although competition is part and parcel of business, entering a new market requires a careful investigation of the company’s competitive advantage. While there are various grocery stores in Japan, the TJ team’s study assures the company that it has an outstanding competitive advantage. From the team’s investigation, it is apparent that the Japanese communities have strong appeal for goods from all over the world (Chéron & Sugimoto, 2015). For this reason, TJ’s commodities will effectively compete with the locally produced goods without any barrier as a foreign country. Additionally, TJ will have an advantage owing to their principle of supplying only the items in demand. Therefore, their stores are hugely stocked with only those commodities that a customer’s needs are regularly saving them the time to go through frisk through rarely bought goods. Additionally, TJ will be able to thrive over the local stores because they sell nearly a single brand. For this reason, it will be easy for them to market their commodities since they will do so as a single brand.
Although there has been global criticism of the Japanese political influence on businesses, the TJ team did not independently identify any substantive political hindrance to our proposed business. Despite having been led a single party, the Liberal Democratic Party (LDP), for, over the decades, the country practices a democratic form of governance. However, political leaders make laws, which have to be adhered to all the residence businesses. Additionally, business is required to adhere to certain legal regulations enforceable by the Ministry of finance and the Ministry of Economy, Trade and Industry (Haidar & Hoshi, (2014). Among these regulations, however, TJ team did not find any unfriendly rule since there are also particular rules to be adhered in the home country as well. Additionally, the US government has recently declared its friendly political and economic relation with Japan. In a report issued by the US Department of State, the US reiterated its collaboration with Japan, urging its citizens to feel free investing in Japan (www.state.gov). For these reasons, the TJ team does not anticipate any hostile relationship from the Japanese authority.
The host countries legal system is a key consideration in laying out a business. Understanding of the judicial system is rather more important when trading in a foreign country. Legal battles, whether worn or lost, are a burden on the business and may taint the business’ image. However, legal battles can only be avoided through a thorough understand of the host country’s rules and the legal system. Understanding of the legal procedures is also paramount, especially in a foreign environment, to enable the business safeguard its rights while still honoring its obligations. For this reason, the TJ’s business development team has spent a substantial amount of time and resources studying the Japanese legal system. The team has already contracted the company’s legal representative whom they will continually consult on any matter that pertains to the doing business in Japan. These include advice on issues such as Tax remittances, contract laws, employment laws and many more.
Understanding the target customers’ general culture is also necessary when operation a business. Moreover, understanding of the customers cultures is paramount in the service industry. It enables the business to align itself as per the customer’s expectation. Additionally, understanding of the culture of the host country helps in relating with other business parties such as the suppliers, competitors, and consultant firms. In the study of the Japanese culture, the TJ team realized that the general practices in Japan vary that of the Americans. For instance, the Japanese attach high value to indirect communication and inferred messages. On the other hand, the American people pay little attention to indirect communications (Gesteland, 2012). Contrary, the American looks forward to written or verbally communicated messages. For this reason, the TJ team concludes that there is a need to be extremely careful when handling the Japanese client since they are sensitive to indirect forms of relationships. Based on this conclusion, the TJ business development team is already training the American expatriates who will be going to Japan when the business starts.
Although the religious belief may not have a greater impact on some businesses, religious practices have a greater impact on grocery stores. The religious seasons such as holidays impacts the people’s buying behavior. For example, supermarkets in Christian dominated communities tend to register increased sales during Christmas and Easter holidays. In addition, the kind of items purchased tends to change with the changing Christian’s calendar. It is, therefore, vital for a business to take the religious faith into consideration to make available what the customer needs at a given time. Similarly, the religious faith in Japan may influence sales in our store in Japan. In their study, the TJ team found that Shinto and Buddhist are the major religious rituals dominant in Japan. Understanding of the specific beliefs in these religions is not only vital in determining what to stock, but it also helps in identifying how to treat the customers and employees. Unlike other religions where people have a high regard for their faith, the Japanese seems to be Lesly concerned about their religion (Kitagawa, 2014). As Kitagawa elaborates, most Japanese have high regard for work and businesses than religion (2014). However, there are specific rituals such as death and funerals that are observed to the later. Nonetheless, the TJ did not identify religion as a major impact on our upcoming business.
Wholly Owned Subsidiary
Having analyzed the various entry methods available for Trader Joe’s this proposal finds that opening a wholly owned subsidiary is the most viable option. A subsidiary is a separate legal entity that is partially independent but can be controlled by the parent company. In the case of TJ, for example, the company will open a subsidiary company in Japan, which may go by the name “Trader Joe’s Japan.” The TJ Japan will have all the legal entities of a free company only that it will be regulated by TJ California as per the management’s agreement. TJ japan will be in a position to open branches or even other subsidiaries. Additionally, its shares may be traded on the Japanese stock exchange, despite being controlled by the mother TJ California.
Among the advantages identified in creating a subsidiary is the fact that the TJ California and its new subsidiary isolates risks since each will be held as an independent entity. TJ California’s control over their subsidiary will be determined by the number of shares owned. For instance, the parent company may retain the majority shares of the subsidiary company to be the major decision maker. Additionally, the parent company may sell the shares of the subsidiary company to raise more capital. However, this proposal suggests that the TJ California retain 100% of the shares, which means wholly owning the subsidiary to have full control of the subsidiary including the financial and operational decisions.
Another option for Trader Joes would be entering to Japan through a Franchise. A franchise involves allowing someone else to trade in the name of the franchisor. For instance, TJ may identify an individual or independent company to run a business on its behalf. In layman’s terms, the franchisor sells its brand name to be used by another independent trader. The relationship between the franchisor and the franchisee, including the sharing of profit and the authority of each party, is defined in the franchise agreement. The control of Franchisor over the franchisee is relatively less than in wholly owned subsidiary. However, the initial startup capital in selling franchise is minimally low than in creating a subsidiary. Additionally, creating a subsidiary involves complex legal procedures and involves the high cost of administration.
Even though a franchise may appear cheap to start and run than a wholly owned company, this proposal argues that a wholly owned subsidiary is a better option for the Trader Joe’s. The aim of the TJ is not just to earn profit but also to exploit the diverse opportunities provided by the Japanese market. However, selling a franchise will only guarantee the company a small increment in profit since the business will be run by someone else. Although this will relieve the company of the hectic of managing a business in the foreign market, it denies them of an opportunity to exploit the new niche, which is the Japanese market. For this reason, this proposal finds that entering Japan through a wholly owned subsidiary is in line with the TJ long-term goals of becoming a household name in Japan.
Other options such as opening a joint venture with another company could be local or international. In a joint venture relationship, the two owners contribute equal capital and have equal rights in decision-making. It is necessary when one company is unable to invest on its own. However, TJ Company is ready to enter the Japanese market independently.
JT will be exporting some of their locally obtained products. However, they will also source for suppliers in the local markets. Even for the locally obtained products, company’s branding will be maintained.
The company will take care of all the licensing and premise acquiring, unlike in franchise alternatives where the franchisee takes care of the licensing.
After establishing a wholly owned subsidiary in Japan, TJ will require qualified and experienced staffs to ensure the success of the business. This will include hiring specialists and consulting international business consultants. Additionally, the company will be required to sponsor some of their staffs into short-term courses to increase their suitability in the international business settings.
International Human Resources
After incorporating a company in Japan, it will not be business as usual since the entire workforce of the TJ Company will include people with different backgrounds. For example, there will be instances of language as a barrier to communication since some Japanese are not well vast with English. For this reason, TJ will need to include an international human resources Manager in their team one who is experienced in handling diverse workforce.
International Finance and Accounting
The finance department the TJ’s headquarter will be faced with an additional role of reconciling the books of accounts from the home branches as well as those from the newly formed subsidiary. Additionally, doing business in two different countries includes identifying the effective costing for each taking into consideration the difference in supply and costs of resources. For this reason, TJ will require international finance and accounting personnel.
Despite diversity in TJ’s business, the company will maintain its supplies for American produced products some of which will be exported to their branch in Japan. However, they will also add Japanese products to satisfy Japan’s consumer needs.
Marketing is a critical aspect when venturing into a new market. The TJ will need to market itself in Japan to sell their brand. This will include planting posters and publishing adverts through the media. They will also require advice from Japanese based marketing agency to be advised accordingly. However, the advice may be acquired through consultation without the need to hire international marketing managers.
Despite the high cost involved in setting up a subsidiary, this proposal estimates that the newly established company will be able to make a profit after one year after establishment. For the first one year of operation, the newly established firm will be servicing its operations and establishing its roots in the new market. By the end of one year, however, the company will have created customer loyalty and will be able to register substantive return on investment.
While it may take up to one year for the shareholders to enjoy a return on investment, the government of Japan will start benefiting from the foreign investor right from the day the company is registered. For instance, the company will pay legal fees for registration and will thereafter remit relevant taxes. Additionally, the newly formed company will create job opportunities for the local citizens, which is a contribution to the wellbeing of the company.
Evidently, the Trader Joe’s is poised for success in the Japanese market. Although there will shoulder an additional expense in registering a new entity in Japan, it will eventually enjoy profits. Japan provides a viable business environment owing to its economic and political stability. Although it may appear as though franchise would be a cheaper method to enter Japan, wholly owned subsidiary is the most suitable option that is consistent with the company’s present and future go.
Chéron, E., Hayashi, H., & Sugimoto, T. (2015, January). Contrasting country and product images of Japanese and Canadian consumers and the effect of ethnocentrism. In Proceedings of the 2000 Academy of Marketing Science (AMS) Annual Conference (pp. 67-72). Springer International Publishing. Retrieved from http://link.springer.com/chapter/10.1007/978-3-319-11885-7_18#page-1
Gesteland, R. R. (2012). Cross-cultural business behavior: a guide for global management. Copenhagen Business School Press DK.
Haidar, J. I., & Hoshi, T. (2014). Implementing Structural Reforms in Abenomics: How to Reduce the Cost of Doing Business in Japan. Available at SSRN 2462735. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2462735
Kitagawa, Z. (2014). Administrative Regulations (Vol. 4). Doing Business in Japan.
Malcolm, J. P. (2013). Financial Globalization and the Opening of the Japanese Economy. Routledge.
Our Story. (n.d.). Retrieved April 8, 2015, from http://www.traderjoes.com/our-story