International Marketing Essay, Research Paper

I. SUMMARY MEMORANDUM

To: Mr. Jinn Chow Yin, president of Yin Enterprises

From: Chivonne Parker and Vonique Booze, Gap Inc. representatives

Date: January 16, 2001

Regarding: Proposal for an international business venture

The business venture that we propose is to set up a chain of our stores, the Gap Inc. We are a global company with three exciting divisions- Banana Republic, The Gap, and Old Navy. Our performance begins and ends with our customers. We never forget that. Everyday we try to listen more to what customers are telling us, and work harder to exceed their expectations. Our ability to continually change and evolve our brands is what drives our long-term success, and our passion for innovation is what keeps Gap, Banana Republic, and Old Navy exciting. From product design and distribution, to marketing, merchandising, and shopping environments, we control our brands and what our customers touch, see and feel. We believe that’s a competitive advantage as the retail world today moves at Internet speed. We feel that the Japanese can help us to expand our company. We would like to work with you and your country to help us get our products into the hands of Japanese consumers. This would be a great accomplishment for our corporation and we’d like you to be apart of it. We’re very excited about this proposal. I hope we can work together and help us to accomplish our goals.

II. INTRODUCTION

The international project we are doing will be to propose setting up a chain of apparel and accessories stores in Tokyo, Japan. The company we will be representing is Gap Inc. Gap Inc is a global company with three different divisions-The Gap, Banana Republic, and Old Navy. Our major products include an array of clothing from jeans and khakis to Pocket-Ts and Pro-Fleece wear. Gap Inc. also offers a variety of accessories which include our own scent lines for men and women, handbags, totes, socks, belts and other extras. Tokyo is the largest urban area and capital of Japan, and one of the most heavily populated metropolises in the world. Tokyo is located at the head of Tokyo Bay, midway along the eastern coast Honshu, the largest of the four main islands of the Japanese archipelago. The city occupies most of the southern part of the Kanto Plain, the largest area of flat land in Japan. Tokyo has been the capital of Japan since 1868, after the Tokugawa dynasty (1603-1867), which ruled from Kyoto, was overthrown. At that time the city’s name was changed from Edo to Tokyo, which means “eastern capital.” Today Tokyo is Japan’s financial, industrial, commercial, educational, and cultural center; it is also the country’s principal contact point for trade and diplomatic relations with the rest of the world. We selected Japan because of its love for the western culture. Since the Japanese economy is similar to our own, we came to the conclusion that it would be the perfect place to establish and expand our business in the global market and make an immense profit. Japan has an exceptional economic system, which will prove to come to and advantage for our business. We feel our corporation can provide for and relate to the Japanese consumer. Some of the trade barriers are testing standards, certification requirements for products, and customs procedures. We will go into a more detailed description of these barriers in the proposal. Some of the sources of information in this proposal are www.jinjapan.org, which provided a lot of information regarding Tokyo’s consumer behavior and data, statistical information on the Japanese population density, etc. As stated above, this information will be in more detail throughout the proposal.

III. ANAYSIS OF THE INTERNATIONAL BUSINESS SITUATION

A. Economic, political, and legal analysis

1. Since the end of World War II, Japan has become a major economic power. The country has the world’s second largest economy in terms of gross domestic product (GDP). The GDP is the total value of all goods and services produced within a country yearly. Only the United States has a greater GDP than Japan has. Japans economic system is strong and rapidly growing, even though they don’t have a lot of natural resources. They have to import most of their raw materials needed by its manufacturing industries. In order to get money to buy these imported materials, Japan sells the products of its factories to many other countries throughout the world. So in this, their economy extremely depends on foreign trade.

Manufacturing

Manufacturing is the single most important economic activity in Japan. It employs 24% of all its workers and accounts for 28% of Japans gross national product (GPA). The industrial growth of Japan ranks amongst one of the highest in the world. Manufactured products such as electronic devices and huge oil tankers are popular for their exceptional performance and high quality. The factories in Japan are very high tech which gives a great advantage to the Japanese economy. This is because it makes production more efficient and even more importantly less expensive. Production of transportation is the most important equipment to the Japanese industry. They produce 8 million cars each year, making it the worlds leading automobile-manufacturing country. Japan is the worlds leading shipbuilder. Japan is a thriving chemical industry. Japan are also leading producers of iron and steel, much of which is exported, cement, ceramics, clothing, fabricated metal products, food products, lumber and wood products, paper products, raw silk, and textiles.

Agriculture

Agriculture in Japan accounts for 3% of the GPA and employs 9% of the nations` workers. Only about 15% of the land in Japan is cultivated. The most important crop in Japan is rice. Japan is one of he worlds leading rice-producing countries. Rice fields take up about 50% of the country’s farmland. They also have grown a wide variety of other crops including sugar beets, tea, and tobacco.

Fishing Industry

Japan is ranked number one in the worlds fishing industry. It employs only 1% of the nations` workers, but they catch 13 million short tons of fish every year. Japan is also a world leader in tuna fishing and ranks second to the United States in the amount of salmon caught. Other products of Japans fishing industry include eels, flatfish, mackerel, Pollock, sardines, craps, squid, and many other types of seafood.

Mining

Japan has a wide variety of minerals, but most are in quantities to small to satisfy the countries needs. The mining products include coal, silver, manganese, tin, zinc, copper, lead, limestone, and coal. The materials that are needed by Japans industries have to be imported. All the bauxite, copper and petroleum the country needs, is mostly bought from other countries.

Service Industries

Service Industries is a general name for a large, varied category of economic activities. All together, these industries account for 61% of Japans GPA, and employs 56% of the country’s workers. The service industries of Japan include hospitals, government agencies, schools, and other institutions that provide important community services. Financial institutions make up make up another major group in service industries, such as banks and insurance companies. Advertising agencies, data-processing services, real estate companies, restaurants, and many other business establishments also supply essential business, community, or personal services. Other service industries include trade, transportation, and communication.

Energy Sources

Japan ranks among the world’s leading producers of electric power. Petroleum and natural gas provide 67% of Japans energy. The country imports nearly all of its petroleum and all of its natural gas. Domestic oil production meets less than 1% of the country’s needs. Japan buys most of its oil from the Middle East. It also faces possible fuel shortages, so they buy some petroleum products from several other countries. Coal meets 17% of Japans energy needs. Electricity generated by hydroelectric and nuclear power plants takes up 16% of Japans energy.

Foreign Trade

Japan is one of the worlds leading trading nations. Its imports and exports total more than $500 billion annually. The main exports, in terms of value, are passenger cars, iron and steel, and electronic equipment. Petroleum is Japan’s chief import. It accounts for 35% of the total value of imports. Other major imports are chemicals, coal, iron, natural gas, timber, wheat, meat, and other minerals. The United States is Japan’s main trading partner. Japan is second to Canada as the principal trading partner of the United States. Japans other leading trading partners include Australia, Canada, China, Germany, Indonesia, South Korea, Saudi Arabia, and the United Arab Emirates. Japan has a favorable balance of trade. Japan maintains this balance by exporting manufactured produce throughout the world at competitive prices and by restricting imports by means of various trade barriers. The trade barriers include tariffs and quotas. Japans trade policies have contributed to unfavorable trade balances for countries that import large quantities of Japanese goods but face barriers to exporting their own goods to Japan. To maintain good trade relations, Japan has begun responding to these requests. For example, beginning in 1981, it reduced its exports of automobiles to the United States. It also has relaxed restrictions on imports of U.S. food products. But U.S. officials still criticize the serious trade imbalance that remains in Japan’s favor.

Transportation and communication

Japan has a modern, highly efficient transportation system, including highways, railroads, and coastal shipping. All the major cities have extensive local transit networks that include buses, trains, and subways. Japans rail lines handle about 7% of the nations freight traffic and about 40% of its passenger traffic. Japans merchant fleet totals about 40 million gross tons. Japans chief ports are Chiba, Kobe, Nagoya, and Yokohama. Hundreds of smaller ports and harbors enable coastal shippers to serve every major city in Japan. Ships carry almost half of Japan’s freight traffic. Japan has many modern airports such as Tokyo International, and Osaka International, both, which rank among the world’s busiest airports. Japan has thriving publishing and broadcasting industries. The country has more than 125 daily newspapers. Asahi Shimbun, Mainichi Shimbun, and Yomiuri Shimbun, each published in 5 regional editions in the country, has the largest circulation. Japanese publishing houses produce more than 40,000 books annually. Almost every Japanese household has at least one television set-usually in color-and one or more radios. The Japanese government operates the postal system. The countries telephone and telegraph systems are privately owned. About 90% of all Japanese households have a telephone.

2. Japan has a democratic system of government. The Japanese Constitution, which came into force in 1947, is based on three principles: sovereignty of the people, respect for fundamental human rights, and pacifism. All Japanese people can vote once they reach the age of 20. The National Diet, Japan’s parliament, consists of two chambers: the House of Representatives and the House of Councilors. Once elected to the Diet, legislators vote on laws for the country. The Japanese do not elect a president directly, like the Americans or the French. Japan has a parliamentary cabinet system of government like Britain and Canada. This means that Diet members elect a prime minister from among themselves, who then forms a cabinet and administers the nation. The current Prime Minister is Yoshiro Mori.

The government is divided into the legislative, executive, and judicial branches. Each of these is independent and able to keep an eye on the other two; this helps protect people’s freedom, as power is prevented from becoming too concentrated in one section of government.

The Emperor of Japan is a symbol of the state and the unity of the people. He is not involved in the government of Japan. The heads of regional governments and local assembly members are chosen by election.

3. There are a couple laws in Japan that will affect our products and services but as long as we effectively cooperate with these laws, we will not have any problems. The Japanese government has had many of their import laws in place to protect Japanese domestic goods which are often more expensive than foreign imports at cost. The government has put in place barriers such as testing standards, certification requirements for products, and customs procedures. Some laws we will have to deal with will be the Antimonopoly Act of 1974, the Amendment to the Antimonopoly Act of 1982, Insurance Business Law, and Unfair Trade Practice Laws. The Antimonopoly Act prohibits private monopolization, unreasonable restraint of trade and unfair trade practices. It also prevents excessive concentration of economic power and eliminates unreasonable restraint of production, sale, price, technology and the like, and all other unjust restriction of business activities through combination agreements. The Amendment to the Antimonopoly Act of 1982, aims to promote free and fair competition, stimulate the creative initiative of entrepreneurs, encourage business activities of enterprises, heighten the level of employment and to increase people’s real income. Thereby, the Act promotes the democratic and wholesome development of the national economy as well as to assure the interests of consumers in general. The objective of the Insurance Business Law, with due consideration of the public responsibilities of the insurance business, is to protect policyholders’ interests by ensuring the sound management of insurance companies. And also to uphold the fairness of insurance soliciting activities, thereby contributing to the stability of people’s lives and the sound development of the national economy. Some Unfair Trade Practice laws include the following:

Refusal to Deal

1. Unjustly refusing to deal, or restricting the quantity or substance of a commodity or service involved in the transaction with a certain entrepreneur, or causing another entrepreneur to take any act, which comes under one of these categories.

Discriminatory Pricing

2. Unjustly supplying or accepting a commodity or service at prices that discriminate between regions or between the other parties.

Discriminatory Treatment on Transaction Terms, etc.

3. Unjustly affording favorable or unfavorable treatment to a certain entrepreneur in regard to the terms or execution of a transaction.

Discriminatory Treatment in a Trade association, etc.

4. Unjustly excluding a specific entrepreneur from a trade association or from a concerted activity, or unjustly discriminating against a specific entrepreneur in a trade association or a concerted activity, thereby causing difficulties in the business activities of the said entrepreneur.

Unjust Low Price Sales

5. Without proper justification, supplying a commodity or service continuously at a price that is excessively below cost incurred in the said supply, or otherwise unjustly supplying a commodity or service at a low price, thereby tending to cause difficulties to the business activities of other entrepreneurs.

Unjust High Price Purchasing

6. Unjustly purchasing a commodity or service at a high price, thereby tending to cause difficulties to the business activities of other entrepreneurs.

Customer Inducement by Unjust Benefits

7. Inducing customers of a competitor to deal with oneself by offering unjust benefits in the light of normal business practices.

Tie-in Sales, etc.

8. Unjustly causing the other party to purchase a commodity or service from oneself or from an entrepreneur designated by oneself by tying it to the supply of another commodity or service, or otherwise coercing the said party to deal with oneself or with an entrepreneur designated by oneself.

Dealing on Exclusive Terms

9. Unjustly dealing with the other party on condition that the said party shall not deal with a competitor, thereby tending to reduce transaction opportunities for the said competitor.

Resale Price Restriction

10. Supplying a commodity to the other party who purchases the said commodity from oneself while imposing, without proper justification.

Dealing on Restrictive Terms

11. Dealing with the other party on conditions which unjustly restrictions of any transactions between the said party(s) and his other transacting party(s) or other business activities of the said party(s).

Interference with a Competitor’s Transaction

12. Unjustly interfering with a transaction between another entrepreneur who is in a domestic competitive relationship with oneself or with the company of which one is a stockholder or an officer and its other party to such transaction. Preventing the formation of a contract, or by inducing the breach of a contract, or by any other means whatsoever.

B. Trade area and cultural analysis

The trade area will be located in Tokyo, Japan. The population of Japan as of July 2000 is 126,549,976 people. Between the ages of 0-14 years of age there are 9,575,637 males and 9,105,713 females, which accounts for 15% of the population. Between the ages of 15-64 years of age, there are 43,363,637males and 9,105,713 females. This age group accounts for 68% of the population. The 65 years and older group accounts for 17% of the population (male 9,024,015; female 12,501,304). The population growth rate is 0.18% as of the year 2000.The main nationality is Japanese. Ethnic groups include Japanese which accounts for 99.4% of the population and other is 0.6% which mostly Korean. The religions in Japan consist of Shinto and Buddhist (84%), other (16%); other includes Christian which accounts for 0.7%. The language spoken is Japanese. Japanese people of the ages of 15 and over can read and write. The total population of literate people is 99%(1970 est.). Some of the Japanese customs that will be useful and are necessary are as follows: Japanese consumers expect good quality for the products and services offered in the market in general and high quality in the highly priced products and services in particular. Even minor flaws or defects bother some consumers. They support reasonably priced products. However, if the quality is in question, they tend to look for better quality elsewhere. A bow from the waist is the most popular form of greeting. Some of the competitive advantages would be that we have high quality goods. This shows to be of great importance when dealing with the Japanese consumer. There is also a high demand for western goods in Japan. The fact that Gap Inc. represents classic styles in America will help boost sales and will bring in more customers. Some of the disadvantages will be that we have to follow strict guidelines in order to compete with other companies in Japan. This won’t pose to be a big problem for our company. We will cooperate in every way possible in order for us to have healthy competition and relations with our competitors.

A. The target market will be two of the four distinct groups of women who set trends in Japan. One is young woman from the second post-war baby boom generation who is women born in the early 1970s. As consumers, they are “fashion literate” and feel very confident about their own choice. They are better able to weed out from the hype and sales pitches of advertisements what is relevant and useful. They set the trends more through word of mouth. The second group is the youngest trendsetters, which are those girls born in the early 1980s. They have a relatively strong sense of self. They grew up drawing the attention of their parents and grandparents. They like to attract the attention of others and they strive to be in the media. They not only feel attracted to but also exhibit openly their sub-cultures. Through their participation in the short-lived fads, they set the most conspicuous trends of sub-cultures. The main income level would be between minimum wage and salaries up to $100,000 a year. The income of the Japanese families grew almost 3 times in real terms during the 60 years until the mid-1990s. Household spending expanded 2.5 times over the same period of time. The population estimate will be around 16 million people who will be shopping in our stores. Most of them will be males and females between the ages of 18-35. The primary and secondary markets will be females and males between the ages 14-17 and 36-45. Others markets will be children and seniors. In a mature economy, as in Japan, consumers do not buy simply to meet their needs for subsistence or to improve their standard of living. They actively select goods and services in order to pursue the lifestyle they like. Through consumption of goods and services the Japanese began expressing their personal preferences. One, they buy goods or services as a means for expressing their choices. In other words, they are consuming selectively in order to establish their preferred lifestyles. Some consumers are already self-reliant in their selection of goods and services; others seek the advice and recommendations of those who are better experienced. Those who have not yet established their own criteria for selection often follow the advice of those who are considered connoisseurs. They tend to rely upon the information available in the media. Since the 1970s, Japan saw the largest variety of so-called lifestyle magazines born in the world. In those magazines the readers can get information on the goods and services they might consider in order to establish the lifestyle they want.

2. The potential location for our business is Shibuya Mark City. In recent years, a succession of new shopping complexes have been opening in Tokyo and other large metropolitan areas throughout Japan, all of which are focusing their efforts on luring adult consumers. Shibuya Mark City opened for business in early April 2000 in the Shibuya district of Tokyo. Shibuya has been a haven for young women in their late teens and early twenties. The area has likewise been called a Mecca for high-school girls. The city hopes to usher in a new era by targeting a slightly older range of consumers than commonly found in Shibuya-women aged 25 to 45. This is a perfect place for our business to be located because all our customers are right within our reach. Not only will we be catering to the needs of our business; we will also help Shibuya Mark City to bring in that new consumer that they are trying to reach. The requirement of the trade documents state that the trade deficit is due in part to the exchange rate between the United States` dollar and the Japanese yen. Since the dollar has been weaker on the exchange market in comparison to the yen, the United Stated is not able to produce as much income from the exports to Japan then the Japanese are able to on exports to the United States. In the last decade several trade agreements finally opened the Japanese market to U. S goods. The U.S-Japan Framework for Economic Partnership is an “attempt to resolve the imbalance in our bilateral economic relationship by addressing its macroeconomics, structural, and sectoral causes”. This agreement was largely responsible for opening Japanese areas of the market that had been previously been closed to foreign imports. With this trade agreement others say the trade deficit has taken a sharper decline between the United Sates and Japan.

IV. PLANNED OPRERATION OF THE PROPOSED BUSINESS

A. The type of ownership we will establish will be a corporation. Since we are already established as a foreign corporation, we will maintain our same structure overseas. The administration will be in charge of personnel, financial, legal, and public relations. The heads of production will be in charge of managing purchasing, manufacturing, distribution, and service. The marketing department will be responsible for advertising, sales, public relations, and service. We plan to take a staff of current board members and relocate them in Japan. We will also take some of our top marketing executives who specialize in foreign business promotions and relocate them as well. To handle all financial aspects, we will consult our current international financial department and take some of our employees to relocate as well.

Organizational chart—Business functions

B. Proposed product/service

1. The products that we offer are different according to which division they’re in. Here are short descriptions of different divisions and products for each brand: The Gap- From jeans and khakis to Pocket-Ts and Pro-Fleece, Gap is synonymous with classic, American style. Whether you’re shopping in one of our Gap, GapKids, BabyGap, GapBody, and Gap Outlet stores or at gap.com, we make finding modern clothes easy. The Banana Republic-With an emphasis on all things modern, relevant and versatile, Banana Republic is the ultimate destination for style-conscious shoppers. Customers feel it in every aspect of the brand — from personalized service to a distinctive shopping experience. We offer luxurious cashmere sweaters, business apparel, and evening and casual wear for the sophisticated and style conscious consumer. Banana Republic Catalog and BananaRepublic.com, enjoying the Banana Republic lifestyle is easier than ever. Old Navy offers a wide variety of jean and denim clothing, from Tech-Vests, to DrawString Pants, Old Navy is for the fun, fast paced, on-the-go type of customer. We offer an array of sizes and colors that run in turn with the seasons and a large selection of accessories which include hats, scarves, and a line of clothing with the logos of Magic the dog.

2. Gap Inc. works with third-party manufacturers in more than 50 countries, including the United States, to make the products we sell in our stores. Though we don’t own any manufacturing facilities, we developed a Code of Vendor conduct to ensure the factories we do business with make our clothes under safe and humane working conditions. To do this, Gap Inc. has a global network of more than 80 employees who must inspect and approve factories where orders are placed for the first time, and then monitor those factories on an ongoing basis. They inspect factory conditions, review payroll records, interview workers and meet with factory owners and managers to discuss and correct compliance issues.

Most factories work hard to meet or exceed our requirements. If factories don’t share our commitment to maintaining safe conditions and treating workers fairly, we stop doing business with them altogether. Today, we have the most comprehensive internal monitoring organization in the apparel industry, complemented by independent and external monitoring. The cost will be around $32,000-$42,000. The benefits of using these types of distribution are that we don’t have to go through Japanese subsidiaries. Since we are already an established manufacturing company in Japan, we already have the documentation for the transport of products.

B. Proposed strategies

1. Proposed pricing policies

Our pricing policies will be determined on how well the Japanese economy is doing. As far as how much we’ll charge starting off, we’re going to use the prices that we charge in the United States. Except for the fact that we’ll have a 25% increase on the prices due to tariffs and taxes. We will use the Japanese currency, yen. We’ll convert it as needed. Markups will depend on the economy. There will be a trial time to see how well our products do in the market, and if an increase in price is in favor, then we will proceed as needed. The same coincides with markdowns. Except, that we will have markdowns when we have sales and when we need to make room for new merchandise coming into the store. In relation to competition, our prices will compete with the Japanese companies and we feel we will do very well. 2.

2. The proposed promotional planning will include putting up billboards before we are established in Japan have the Japanese consumers feel our presence get familiar with our name. We will also put out ads in the most popular magazines and newspapers. We’ll put new ads in magazines every four months and in newspapers every six months. The promotions will be different for each brand and will be as follows: At Gap, we will premiere a new line called “1969,” a collection of vintage-inspired clothing and accessories for men and women. Above all else, Gap’s merchandise and marketing will remain simple and focused. We will feature the latest special effect film techniques. For example, for our GapKids TV spots, we will show boys and girls outlined in bold black, to spotlight the details of the Carpenter Flare and the Contractor Jean. Classic, modern clothing. Unique, easy style. That’s Gap. Banana Republic will go with the simple approach to marketing and merchandising. This will speak directly to our customers looking for style that is effortless and flexible. The result? Everything we offer will reflect our customers` lifestyle-and transitions easily from career to casual, weekend to evening. When it comes to exceptional style and service, Banana Republic stands alone. Old Navy will focus on merchandise availability and distribution-and increased style, size, and color selections for customers throughout Japan. We will have an Item of the Week to make it easier for customers to find fashion and value by highlighting key fashions at low prices. Featured promotions will be emblazoned on theater-style marquees and clothing will by cleverly merchandised on displays that stimulate merry-go-rounds and market counters.

V. PLANNED FINANCING

1. Start-up costs and expenses

Deposits (rent utilities, telephone, etc.) $3,900-$35,300

Furniture and Equipment $21,300-$42,300

Machinery and Equipment $5,000-$32,500

Transportation Equipment $32,000-$45,000

Building Improvements $11,300-$52,500

Professional Fees $1,500-$4,000

Advertising $10,000-$15,000

Working Capital $3,800-$93,700

Inventory $35,000-$157,500

Tariffs and other taxes $11,000-$45,000

Budget $500,000

Totals $130,900-$487,500

2. Financial highlights (balance sheet for the end of the first year)

Operating Results ($000) 52 Weeks ended Jan. 29,2002

Net Sales $11,635,398

%Change from year to year 29%

Earnings before taxes $1,784,949

%Change from year to year 35%

Net Earnings $1,127,065

%Change from year to year 37%

Per share data

Net earnings-diluted 1.26

Cash dividends paid 0.09

Statistics

Net earnings as a % of net sales 9.7%

Return on average assets 24.6%

Return on average shareholder equity 59.2%

Current ratio 1.25:1

Number of stores open at year end 3,018

Comparable store sales growth 7%

Bibliography

VI. BIBLIOGRAPHY

Annual Report on Current Population Estimates

As of October 1st, 1999

Statistics Bureau & Statistics Center.

Management and Coordination Agency

Annual Report on the Family Income and Expenditure Survey

Statistics Bureau & Statistics Center, Management and Coordination Agency

(2000)

“Consumer Trends”-women as consumers

http://www.jinjapan.org/insight/html/focus05/women_as_consumers/consumer_trends01.html

“Consumption of Goods and Service”

http://www.jinjapan.org/insight/html/focus08/consumption%20of%20goods/con03.html

“Generational Differences”

http://www.jinjapan.org/insight/html/focus05/women_working/generational_differences.html

“Household accounts”

http://www.jinjapan.org/insight/html/focus05/women_as_consumers/household_accounts01.html

“Japanese Consumers”

http://www.jinjapan.org/insight/html/focus08/flash%20backs/fb03.html

PRICES OF GOODS AND SERVICES

http://www.jinjapan.org/insight/html/focus08/prices%20of%20goods/pric10.html

“Women in the work force”-women working and pursuing careers

http://www.jinjapan.org/insight/html/focus05/women_working/women_working_and01.html