Japanese brands must change

29 June 2011

TOKYO: Brand owners in Japan must enhance their marketing, innovation and consumer insights capabilities to thrive on the worldwide stage, McKinsey has argued.

The consultancy revealed Japanese corporations accounted for 13% of Fortune 500 revenues in 2009, measured against 35% in 1995.

Moreover, the country's share of electronics exports - traditionally an area of strength - slipped from 30% in 1990 to less than 15% in 2010.

Indeed, Japanese electronics groups Panasonic and Sony are smaller than South Korean rivals LG and Samsung in India.

Honda and Toyota, two of Japan's leading carmakers, similarly trail GM and Volkswagen in China, while business services provider IBM has a stronger position in Japan than Fujitsu does in the US.

"Building a globalised company will require many Japanese executives to think in new and unfamiliar ways about organisation, marketing, and strategy," McKinsey said.

Low productivity, an emphasis on effort rather than outcomes, and limiting outsourcing to a restricted number of IT tasks, has left Japanese companies "vulnerable" in their home market, the report added.

Foreign retailers like Costco, H&M, IKEA and Zara have also tapped interest in shopping "experiences", and Wal-Mart has leveraged its global footprint to deliver lower prices than local chains.

An increasing desire for ecommerce and unique goods has assisted non-indigenous enterprises like Amazon and Apple, and suggest Japanese consumer habits are not as distinctive as previously.

"What they want is value," McKinsey said. "In a Japanese context, value means products that look attractive or stylish but are nonetheless significantly less expensive than traditional offerings."

Alongside slow domestic economic growth, a further imperative for change comes in the form of Japan's ageing population, estimated to shrink from 127m people in 2040 to 100m people to 2050.

Rising competition, both on the part of established multinationals and nimble challengers - whether from China, South Korea, Singapore or Taiwan - equally necessitates a process of renewal.

Cosmetics group Shiseido is one firm making progress, moving beyond a reliance on Japan-based new product development, aided by its acquisition of Bare Escentuals, a US operator, for $1.7bn last year.

Since 2005, it has stated the aim of being a "top global player", explicitly communicating this goal to staff, focusing on international brands and streamlining its portfolio.

It also trains thousands of beauty consultants each year in Japan, Russia, China and the US, and integrates technology in products even if they do not carry the Shiseido name.

Elsewhere, McKinsey's analysis demonstrated the top ten Japanese businesses in 16 categories generated just 33% of revenues from abroad, below the 52% posted by overseas rivals.

Totals stood at 24% and 47% respectively regarding ownership, 17% and 44% concerning assets, as well as 2% and 9% when discussing management, showing Japanese corporations are "less global" at present.

Marketing is a primary area of weakness, as while Nintendo and Toyota have combined ground-breaking insights, innovation and a consistent customer experience, they remain "the exception".

"Fewer than 1% of Japanese companies with revenue above $1bn have a CMO, compared with more than 10% in US companies of equivalent size," McKinsey said.

"Of the top 12 Japanese beverage manufacturers, for example, we could find only one with a separate marketing organisation reporting to the CEO."

As such, the key goals for Japanese firms must include hiring and determining the competencies of CMOs, appointing English-speaking marketing talent fluent in international and Japanese needs.

"Marketers increasingly tend to identify 'tribes' of consumer archetypes that cross borders. Each archetype involves similar products and brands," McKinsey said.

Data sourced from McKinsey; additional content by Warc staff