Lestra Design in the Japanese Market - Article Example

Lestra Design in the Japanese Market Lestra Design has not been successful in the Japanese market because they did not sufficiently analyze and learn the Japanese culture and business practices prior to their market entry. The case informs us that they only undertook a market survey. Their lack of knowledge on the local culture is evident with their ignorance about the preferred colors, size, motif patterns and fabric density for duvets that are sold within the Japanese market. Secondly, Lestra’s success was further hampered by their limited knowledge of the complex distribution system of the Japanese duvet industry. Furthermore, Lestra was opposed to the preferred business practice in Japan which allowed potential distributors to license the design and then manufacture in Japan rather than import the final products from France. Lestra Design’s lack of success is not good considering that, from the market survey conducted by Legrand, the Japanese market for duvets and eiderdowns was the largest in the world standing at half of its 120 million inhabitants. For an organization that was aiming to be a global brand commanding global leadership succeeding in the Japanese was vital. In 1985, Leopold & Fils together with its two subsidiaries (Lestra Design and Lestra Sports) had revenues of FF72 million. In Japan, Morimoto was willing to pay FF900 free on board for each duvet. Assuming that all Japanese distributors are willing to pay a similar amount and Lestra gets 0.5% of the Japanese market (0.5% of 60 million), the firm would get revenues of FF270 million. This would be triple the amount of revenues they made in 1985. These figures signify the importance of the Japanese market. The failure of Lestra Design to succeed in Japan can be placed squarely on Mr. Claude Leopold, the President and George Mekies, the general manager. This is because as they bear the executive authority to make sound decisions. Firstly, the duo should have conducted a more thorough industry analysis before venturing in, for example they could have analyzed why their major French competitor had tried to venture into Japan and failed. Secondly, in 1978 and 1979 when Lestra was beginning its quest to enter into the Japanese market we are informed that Leopold was more preoccupied with developing Lestra Design sales in Europe. This infers that the executives were putting in less effort on Japan in comparison to Europe. What is Lestra’s competitive advantage in Japan? Lestra has numerous competitive advantages if it is to compete in Japan. The first competitive advantage is that it is a French company. We are informed that the “Made in France” label is held in high regard in Japan such that customers would be willing to spend top dollar for such products. The firm could simply emphasize their “Frenchness” to their advantage in Japan. The second competitive advantage is that Lestra Designs were the leading brand in France and yet some French designers almost unknown in France had built a very strong reputation in Japan. Lestra could build on their “best in France” status to bolster their brand performance in Japan. Thirdly, Lestra have the option of entering the Japanese with a shorter distribution chain strategy as Leopold was trying to do. This would increase efficiency and reduce costs. Another factor that we can view as a competitive advantage is that Lestra has several available alternative strategies to consider before entering the Japanese market. This is a competitive advantage in the sense that the firm will not have to bear the expensive learning curve costs that their already established competitors in Japan had to bear. They have the option of choosing the better of the available strategies. What recommendations will you offer? Should they continue pursuing the Japanese market? How? If not, what should they do? There is no doubt on the management that there is a huge market (60 million potential customers) for Lestra Design’s products in Japan. From the case we are also aware that in spite of all the challenges that Lestra has faced, the Japanese, here represented by Akai and Marimoto, still have an interest in distributing Lestra products in Japan. Another fact also is that it has been proven that other foreign competitors, namely German firms, do operate successfully in Japan. With the major questions about business potential and viability in Japan being positive as discussed above, and with their global brand name, we would advice Lestra Design to continue pursuing the Japanese market. According to Rapaille’s archetypes cultural awareness is the key to global success. The more global a company is the more it should aim to localize. For example quality means different things in different countries. In France it implies luxury; in the USA so long as it works it is quality while in Japan quality refers to perfection. Perhaps the close resemblance of adherence to standards is what made Germany competitors more successful in Japan than their French counterparts. Also we cannot forget to mention that the difficulty in entering the Japanese market, if Lestra succeeds, will act as a barrier to entry to other competitors. From the case, we could use Porter’s five forces to describe the industry as follows. Company rivalry in the duvet industry is still low in comparison to the market size. This has probably been due to the high barriers to entry that have prevented many foreign firms from venturing into the Japanese market. The threat of substitutes is also low considering that the market is segmented by customer preferences to products from certain origins. This is evidenced by the fact that there is a market for French products that cost up to 50% more than Japanese duvets. Supplier power is high because only a few foreign suppliers have the capacity to provide goods that are suited to the Japanese market. Threat of entry of new companies is low because of the stringent requirements of the Japanese customers and their complex distribution channel. Finally, the buyer power is moderate. Buyers demand for specific, perfect products make them strong, but the lack of many such suppliers make weakens their power to moderate. We give the following recommendations for Lestra Design to take if it would like to succeed in the Japanese market. 1. Prepare a country profile for Japan that understands the breadth and depth of the cultural variables and how they might impact the business. This could be looked at from an industry analysis perspective, which is political, economic, social, technological, legal and environmental (PESTLE). Political issues include aspects of quotas, tariff barriers and so on. The economic aspect is positive as evidenced by the success of other foreign competitors. It is the social component of the analysis that Lestra would need to do a lot of work on because it directly influences the consumer purchasing behavior. We are informed that the technical capacity in Japan was greater than in Europe and Lestra had solved the legal issues trademark ownership. 2. Focus on building intimate relationships with their Japanese distributors / buyers because they have a deeper understanding of the market. Lestra will most likely not engage with direct consumer selling, therefore this will be a business to business interaction which implies making more than one sale. Relationship building will involve explaining their position, questioning the other parties’ position and making concessions. 3. Even though Lestra has to make several modifications to customize their products for the Japanese market it is important that they retain the brand’s autonomy while adhering to local sensitivities. Retaining the brand autonomy is vital because Lestra has grown to become a global brand. The local sensitivities such as product sizes, motif patterns, colors and fabric depth are vital to ensure huge sales in Japan. . Read More