Companies must adapt in Japan

13 May 2011

TOKYO: Innovation, marketing and tracking new consumer trends will all be essential strategies for companies seeking to make progress in Japan going forward, the Boston Consulting Group has argued.

Alongside the "immeasurable" human cost of the recent natural disasters striking the country, the consultancy suggested damage to roads, buildings and communications lines could soak up between ¥10tr and ¥25tr.

The impact of power shortages and failures, declining production and the lack of demand in the areas most heavily affected may sit in the ¥4tr to ¥15 range.

In an example of such processes in action, Disney had to close its Tokyo theme park, which has now reopened, and saw adspend contract for its media operations as Japanese automakers reined in their outlay.

"We expect the aftermath of the Japan earthquake to continue to impact our business for the remainder of the year," said James Rasulo, the firm's chief financial officer.

"While it's difficult to predict consumer behavior and the pace of infrastructure improvements, we estimate several cents of earnings risk for the remainder of the year."

Newell Rubbermaid, the owner of Aprica and Sharpie, avoided any direct loss of life among its staff or the destruction of its property, but asserted the situation is still developing.

"We have seen a slowdown in consumption in our two largest Japanese categories, Baby Care and Fine Writing, which we estimate will impact the top line by $10m to $15m," said Mark Ketchum, its chief executive.

"Perhaps the biggest impact will be on our supply chain, as a couple of our key office product suppliers located in northern Japan are plagued by rolling blackouts, which severely curtailed their output."

BCG said shoppers are economising, "cocooning" at home, reading, purchasing energy-efficient goods and buying offerings online, while cutting back on travel, leisure, cars and other durables.

"Japanese consumers of all ages are modifying their daily routines in response to the increased stress that they are facing," it said.

A wider problem, tied to the Fukushima Daiichi nuclear power plant, links to worries about the safety of certain items.

"The negative publicity regarding Japanese products that may have been tainted by radiation - however overblown - could well hurt the reputation of 'Made in Japan' brands for the foreseeable future," BCG said.

Looking ahead, it outlined several strategies corporations should adopt, including creating separate disaster management teams and segmenting businesses and products in terms of risk.

Inflation might become an issue in Japan, rather than deflation, although the likely transformation of the trading climate is also set to offer previously unexpected opportunities.

"Certain businesses - those focusing on infrastructure investment; energy-saving products; construction of 'smart' buildings; or consumer products that address home, convenience, or safety concerns - can expect to expand," said BCG.

While most companies have reduced their advertising and marketing output, some are now re-engaging with shoppers, such as food and beverage group Suntory launching TV ads a few weeks after the earthquake.

"Suntory ... returned to the airwaves, using part of their airtime to rebuild trust in their brands and to promote a 'Ganbare Nippon' (Go, Japan!) message," said BCG.

Retailer Aeon has also been particularly active in the north-eastern areas hit hardest by recent events, holding donation campaigns and offering a wide range of in-store deals.

Data sourced from Boston Consulting Group, Seeking Alpha; additional content by Warc staff