Vaulting trade barriers: The Japanese approach

Long Range Planning, Vol. Printed in Great Britain

18, No.

00246301/85 $3.00+ .OO Pergamon Press Ltd.

1, pp. 73 to 79, 1985

Vaulting Trade Barriers Japanese Approach P. Rajan

Varadarajan,

Texas A G iI4 University,

An innovative marketing strategy pursued by Japanese manufacturers of a wide variety of durable consumer goods to successfully penetrate the Indian market, despite high entry barriers, is the subject of this report. Considerations that may justify imitation of the Japanese strategy by durable goods manufacturers in other industrialized nations to penetrate protected

Third

World

markets

are also discussed.

Introduction Many Third World countries place severe restrictions on the import of consumer durable goods such as color televisions, video cassette recorders, household appliances, etc., into the country. Among the factors generally attributed to the pursuit of such restrictive trade policies are: (a) problems relating to the limited foreign exchange reserves at the disposal of these countries and the need to optimally allocate scarce resources towards priority imports such as food and drugs, oil and natural gas, machinery and capital equipment, to list a few; and (b) to nurture and promote national industrial development by temporarily shielding local manufacturers from foreign competition. Unquestionably, the latter factor has resulted in a wide variety of consumer durable goods being manufactured in Third World countries such as India. Nevertheless, a latent detiland persists in these countries for entertainment electronic goods and manufactured in indushousehold appliances trialized nations since the consumers tend to perceive products manufactured in industrialized nations as superior in quality, features and performance. Moreover, in most cases they show a willingness to pay a higher price for durable goods manufactured in countries such as Japan, U.S.A., U.K., etc., should they be available.

The author is Assistant Professor of Marketmg, College of Business Administration. Texas A & M University, College Station, TX 77843. 4112, U.S.A.

Texas

:

73

The

77843

In light of the above, it is evident that protected Third World markets constitute a potetitially profitable market opportunity from the standpoint of consumer durable goods manufacturers in industrialized countries provided they can overcome the entry barriers. Unfortunately, many firms appear to view the barriers to entry as seemingly insurmountable and make hardly any attempt to market development pursue such (geographic) opportunities. A case in point is India, a leading Third World country with a population of over 700 million. The middle and high income segments of the Indian population who generally have a substantial disposable income and are mostly concentrated in large urban centers, constitute a sizeable market for entertainment electronic goods, appliances, etc., manufactured in industrialized nations. Their to English language magazines and exposure growing incidence of international travel tends to increase the awareness level of this segment to internationally renowned brand names such as Sony, Panasonic, Sanyo, etc. Although this segment of the population has the means and a willingness to buy these brand name goods, their choice is generally restricted to brands manufactured in India (none of the above brand name products are manufactured in India), since the import of many of these items is banned by the Indian Government and hence, are not sold through conventional retail channels of distribution in India. Understandably, local manufacturers competing in the protected Indian market environment and shielded from international competition have enjoyed steady sales growth over the years. The purpose of this paper is to illustrate the innovative use of pull strategy by a number of Japanese manufacturers and their successful penetration of the protected Indian market (Theptlll and pus/z strategies are discussed at length in most basic marketing principles texts. See for example Pride and Ferrell).’ The policies of the Indian

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Government in regard to the import of consumer durable goods, and the innovative communication and distribution policies employed by Japanese manufacturers to overcome the entry barriers posed by the import restrictions are first discussed. Considerations that may justify imitation of the Japanese approach by manufacturers of consumer durable goods in other industrialized nations are briefly reviewed.

Indian Import Policy vs Japanese Marketing Policy : An Overview Panasonic and Toshiba among others advertise their color televisions, video cassette recorders and recording tapes, radios and audio cassette recorders in leading Indian newspapers and magazines. Casio promotes its personal computers, calculators and digital watches through Indian mass media. Toshiba promotes a wide array of household appliances and entertainment electronic goods using the Indian print media. A cursory examination of recent trends reveals that the number of Japanese firms advertising their produqts through Indian mass media as well as the size of their advertising outlay appears to be steadily increasing. Quite intriguingly, none of the Japanese manufacturers who so widely advertise their product offerings through Indian mass media are permitted to market their products in India. Except for access to duty-free shops located in international airports and requiring payment in hard foreign currency, none of the above Japanese manufacturers have an established distribution system in India to distribute consumer durable goods to the Indian mass market. Further, as detailed in Table 1, the import of a wide variety of consumer durable goods such as televisions, video cassette recorders, appliances, etc. for personal use or resale is banned by the Indian Government since a number of Indian firms indigenously manufacture and market these products. (Only firms engaged in the manufacture of household appliances and entertainment electronic goods are permitted to import up to two units of foreign makes for comparative testing purposes.‘) As a result, most Japanese brand name goods that are heavily advertised in Indian mass media are not available through the conventional line of trade retail outlets in India. Further, a retailer prominently displaying goods of foreign origin whose import is banned runs the risk of the products being confiscated and being prosecuted for attempting to sell goods whose import is banned.” (Quite neither the Reserve Bank of India realistically, would have authorized foreign exchange in hard nor the Department of Commerce currency, granted an import license for import of the above items. Even otherwise, the customs authorities would have impounded goods imported without a

1985

Table 1. A partial list of items in the consumer durable goods category whose import is banned by the Government of India (1) All consumer electronic equipment, items, however described, including radio receivers, transistor radio receivers, TV games, electronic watches, AM/FM radio receivers, amplifiers, car radios, tape recorders, car cassette players, TV receivers, record players, record changers, intercom equipment, calculators, as well as kits/ready to assemble sets thereof and their assemblies and combinations thereof, but excluding components in discrete form unless individually mentioned elsewhere in Appendix 3 (Item 666, Appendix 3). (2) All professional electronic systems/equipment, howsoever described, as well as kits/ready-to-assemble sets thereof (Item 667, Appendix 3). (3) All consumer goods, however described, of industrial, agricultural or animal origin, (i) not appearing individually in Appendix 5 (list of restricted items) and Appendix 8 (list of items, import of which, is channelized through public sector agencies--such as the State Trading Corporation) or (ii) not specifically listed in Appendix 10 for import under Open General Licence by dealers, individuals and others for stock and sale purposes (Item 669, Appendix 3). Source:Government of India, import Policy, Division, Government of India (1980)

New

valid import license and in violation import regulations.)

Dehll: Publications

of prevailing

In this backdrop an examination of the general content of the advertisements placed by Japanese firms in Indian mass media reveals the following distinctive characteristics:

(9 Practically every one of these advertisements carries an asterisked (*) note mrhich reads fir inforrnarional only. Apparently, this note serves to minimize the inherent contradiction a potential buyer sees in a

prrrpoies

product being widely advertised but not sold through con\:entional retail outlets in the country. Moreover, it is conceivable that compliance with the regulations governing advertising of products through Indian mass media, but which cannot be imported for resale or personal use may require inclusion of the above statement. (ii) Most of the advertisements also list the addresses of retail outlets in geographically proximate countries, and oil rich Arab countries employing Indian workforce in large numbers, such as, Sri Lanka, Singapore, Oman, Kuwait, Qatar, Bahrain, United Arab Emirates, and Saudi Arabia, to list a few. (ni)

Cognizant of the link between demand for finished goods and the subsequent demand for replacement parts and after sales service, and the large number of imported units already in use in India, most advcrtiscments placed by Japanese manufacturers list the names and locations of firms in major Indian cities trained and authorized to provide after sales service for specific brand name products such as Toshiba, Casio, information regarding the ready etc. Moreover, availability ofafter sales service serves to mmimizr the risk perceived by potential buyers in purchasing a brand not readily avalldblc in retail outlets in India. In

Vaulting

Trade

Quite interestingly, despite the nonavailability of international brand name goods such as Sony and Panasonic through conventional retail outlets in India, and the ban on import of the above items by dealers for resale and individuals for personal use, there appears to be a steady flow ofJapanese brand name goods into India through unconventional channels. While there exist no published data on the extent of Japanese penetration of the India market electronic goods and in regard to consumer evidence of widespread household appliances, ownership of Japanese brand name consumer durable goods by Indian households is revealed by As alluded to earlier, a related developments. number of authorized after sales service centers for Japanese imports such as Sony and Casio have emerged in cities big and small, across the nation. Cognizant of this steady flow of consumer durable goods into the Indian market (manufactured in industrialized nations, but in most cases purchased from retailers operating outside -the boundaries of Institutions Constituting System

1. Manufacturer

The Japanese

Breakirzg

Loose from

Established

Marketing

/.

Imovative

Use of Pull Strategy

Figure 1 provides an overview of an extended pull strategy that serves to explain their successful penetration of the Indian market. It is evident from the figure that, Japanese brands are primarily

Geographic

Location

of Institutions

.

Japan

I t

I

/

I I

Indian Print Media

2. Traditional Marketing Intermediaries: Stockists, Distributors. Wholesalers, and Retailers

(a) U.S.A., Canada (b) Western European Countries (c) Geographically Proximate Countries with Less Restrictive Trade PoliciesSri Lanka, Singapore, Hong Kong, Kuwait, Dubai, United Arab Emirates

3. Institutions

(a) Friends/Relatives of Households Constituting the Target Market Permanently Residing in U.S.A., Canada U.K. and Other Western European Countries (bJ Members of Household Temporarily Visiting Another Country Where Product is Freely Available, or are Temporarily Employed in a Country Where Goods of

and Aggregates of Individuals Facilitating Product Flow to the Target Market

\

‘\ Key: --_-_ Generate

4. Target

Product

1. An extended

Middle

Market

Flow:

and High

Income

Flow: Indicates Communication Communicate Distinctive Features

+ Communication Brand Awareness,

Gntermediaries,

Figure

Japanese Origin are Freely Available Such as the Oil Rich Labour Resource Poor Arab Countries-Oman Kuwait. Qatar, Bahrain, Saudi Arabia (c) Indian Travel Agencies Organizing Packaged Shopping Tours to Geographically Proximate Countries Such as Sri Lanka, Singapore, Dubai, etc. (d) Duty Free Shops Located in International Airports In India Requiring Payment in Foreign Currency Such as U.S. Dollars, British Pounds, etc. (e) Illegal Smuggling of Goods into India from Neighboring Countries

I

Indicates and Others

pull strategy

the Flow of Product from Facilitating Product Flow

for penetrating

Practices

Conventional marketing wisdom suggests that prior to advertising a product through mass media, a firm should first develop a channel of distribution and insure the availability of the advertised goods through retail outlets. Situational factors unique to specific markets, however, may justify breaking loose from such conventional marketing practices as illustrated by the approach taken by the Japanese manufacturers to penetrate the protected Indian market.

I

1’

75

Approach

the Indian market), Japanese manufacturers have stepped up their advertising outlay in an attempt to capitalize on this emerging market opportunity. Two factors that appear to have contributed to their success are: (1) their decision to break loose from conventional marketing practices; and (2) their innovative use of an extended pull strategy.

this regard, it should be noted that unlike the case of consumer durable goods, the import of which for purposes of resale or personal use is totally banned by the Government ofIndia, the import of spare parts and components is governed by less stringent restrictions.4

the Marketing

Barriers:

protected

Households

in India

Efforts Undertaken by Manufacturers to of the Brand, Create Brand Preference, etc. Manufacturer

Third

to Target

World

Market

markets

Through

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advertised in Indian mass media to create brand awareness, disseminate product related information and promote brand preference. In effect, their communication efforts serve to stimulate selective demand for brand name Japanese durable goods. Their products in turn are pulled into the market aided by traditional marketing intermediaries operating outside the borders of the target market, and facilitated by distinct groups of aggregates of individuals residing in other countries, and certain institutions. For example, as detailed in Figure 1, a number of travel agencies located in India are actively engaged in promoting shopping tours to geographically proximate countries such as Sri Lanka, Singapore and Dubai which permit free flow of goods and where Japanese brand name goods are widely available. Lines of communication between the individuals in the target market and the two groups of aggregates of individuals identified in Figure 1 [3(a) and 3(b)] also plays an important role in meeting the needs of the target market. Figure 2 provides an overview of the communication support programs employed by certain Japanese manufacturers and one U.S. manufacturer to operationalize their extended pull strategies.

1985

Implications Industrialized

for Marketers Nations

in Other

While a number of experts attribute the success of Japanese corporations to their superior management techniques, in a recent article, Kotler and Fahey speculate that the key to the superior performance of Japanese firms may rest in their outstanding marketing skills. The authors note that the Japanese market entry strategy generally involves: segmenting

the market;

targeting adequately

a segment serving;

that

competition

designing

the product

for that market

entering with a low price, offering and service; developing

strong

is not segment;

high quality,

distribution;

backing the product advertising.’

with heavy promotion

and

Except for their inability to develop an extensive network within the geographic distribution

Disclaimers Included in Advertisements

Company

Product

Information Availability

on Product and/or Service Contained in Advertisements

1. Casio, Japan

Digital Watches

Duty Free Shops in India Authorized Service Centers in India

Company not Responsible for Imitations

2. Casio, Japan

Scientific Calculators, Pocket Computers, Personal Computers and Accessories

None

For Information Purposes only Company not Responsible for Imitations

3. Citizen,

Japan

Analog and Digital Quartz Watches

None

For Information

4. Fisher,

U.S.A.’

Audio and Video Products

Authorized Dealers in Saudi Arabia, Kuwait, Dubai, Abu Dhabi, Qatar, Oman, Lebonon, Egypt, Sri Lanka, Singapore, Hong Kong Authorized Service Centers in India

None

5. Panasonic, Japan

Audio and Video Products Household Appliances

None

For Information

6. Sony, Japant

After Sales Service for Sony Audio and Video

Authorized

Authorized Dealers in Oman, Kuwait, Baharain, Dubai and Saudi Arabia Authorized Service Centers in lndra

8. Toyota,

Passenger Cars

Authorized Intermediary Toyota Cars in India

Adapted

“Fisher,

U.S.A.

from Print Advertisements Appears to Have Taken

None

Service Centers in India

Audio and Video Products Household Appliances

Source:

Only

Products

7. Toshrba, Japan

Japan *

Only

Published

in Two

Qatar,

None

for

Leading Indian Newspapers-

The Hindu

and The Times of India

the Clue from Japanese Marketers

tThe Efforts of Sony and its Intermediaries.in India are Focussed Largely Towards Marketing of Their Comprehensive Annual Service Contracts for Sony Colour Television and Other Audio-Video Entertainment Electronics Products. Genuine Sony Spare Parts, Sony Trained Technicians and a Service Contract Advertisements.

that Covers Everything

Including

*Targeted Primarily at Non-Resident Indians Returning Return to India if Payment is Made in Hard Currency

Figure

2. Communication

support

the Picture Tube in Colour Television

Home

Permanently.

for operationalizing

Sets are the Benefits

Such Persons are Entitled

the extended

to Acquire

pull strategy

Highlighted

a New Imported

in Sony

Car on

Vaulting boundaries of the target market due to legal and regulatory constraints, the rest of the above actions are evidenced to varying degrees in the Japanese penetration of the Indian market. Interestingly, according to recent news reports, a were number of informal recommendations presented to the White House Conference on Productivity by U.S. business, labor and academic leaders for competing with Japan. Some of the major recommendations made were: increased automation, greater use of robots and computers, better training and management, and lifetime employment guarantee .6 Such actions may indeed bear fruit in the long run, but it is equally important to focus on actions likely to pay off in the short run. While the distinctive strength of U.S. and Western European firms appears to rest in the area of formulating corporate grand strategy, the case described suggests that the Japanese firms are more adept at carefully researching individual national markets, analyzing prevailing purchase patterns and brand preferences within these markets, tracking the flow of their products from various sources into specific national markets, and analyzing the import policies and procedures of various countries and the marketing implications of such policies. These and other steps seem to precede formulation of a marketing program specifically designed to capitalize on the opportunities presented by various national markets and overcome the entry barriers confronted. Incremental sales growth opportunities, however small, seem not to be overlooked. Instead, the orientation appears to be one of, ‘how to increase the amount of product flow into various national markets from a trickle to increasingly larger quantities. ” For instance, a recent Btrsiness Week article on advertising of foreign goods in China notes that:’ Taking a long-term, market-building approach, the Japanese begin advertising in China long before their products are available to Chinese consumers. Western advertisers have been more cautious. Consumer goods makers usually refrain from advertising until they get China’s permission to sell their goods for local currency on the open market (Busirw~s Week, 4 June, p. 36 (1984)].

In this regard, it may be appropriate to note that certain considerations attest to the desirability of consumer durable goods manufacturers in other industrialized nations imitating the Japanese approach to penetrating protected Third World markets. First, trade negotiations under GATTGeneral Agreement on Trade and Tariffs-the Geneva-based international trade watchdog tend to follow a systematic pattern. Nations that believe they’re competitively ahead in the manufacture of certain goods and services work towards removal of existing trade curbs such as high tariffs, quotas and other restrictions. On the other hand, countries that sense they are competitively lagging and wish to protect their industries or foster infant ones, resist

Trade

Barriers:

The Japanese

Approach

77

any moves to end trade restrictions.* In recent years, countries with restrictive trade policies have come under mounting pressure to liberalize their import policies during bilateral trade negotiations with their leading trade partners. In anticipation of multilateral and bilateral trade negotiations leading to a greater degree of free trade between nations, it may be in the interest of manufacturers in industrialized countries to carefully evaluate the desirability of advertising for i$mdonal purposes only in Third World countries which constitute a laterzt market from their standpoint. Second, even in cases where such investments in advertising are not viewed as potentially rewarding, firms should carefully evaluate extending their marketing operations into countries with liberal trade policies and few restrictions on the import and export of goods such as Singapore and Sri Lanka. Marketing intermediaries in these countries which are in close proximity to a number of larger protected Third World markets not only cater to the needs of the local population, but also the latter countries with which they have close economic and/or cultural links. This factor should be taken into consideration by firms in industrialized nations while evaluating the potential profitability of establishing marketing operations in Third World countries with liberal trade policies, but which in themselves have a small population base. The payoffs likely to result from pursuit of such push strategies could be substantial. Finally, it should be noted that, while in the past India’s industries have grown behind protective barriers, this could change in the foreseeable future. Historically, Indian firms were protected from the effects of inter-national competition due to the enforcement of a rigid policy of import substitution which restricted the import of any item that could be manufactured locally. Little regard was given to factors such as cost, quality and delivery time. In addition, many firms were protected to some degree even from intru-natiord competition as a result of the government’s industrial licensing policy and the provisions of the Monopolies and Restrictive Trade Practices (MRTP) Act. Many firms operating in such an environment invested little in plant and equipment modernization, product development, quality improvement, etc., since their markets were sheltered, and shortages were widespread. However, in the currently evolving environment of excess manufacturing capacitythe result of liberalized licensing policies and relaxation of the provisions of the MRTP act-a number of firms have been compelled to more aggressively compete in the national market and explore international marketing opportunities as well. These developments though gradual, are generally attributed to a growing realization among planning and public policy making bodies in India that, the combination of high protective barriers and restrictive industrial licensing policies

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have only resulted in negative effects. These include a high cost structure and the inability of Indian firms to compete effectively in international markets.9*‘o Moreover, leading Indian manufacturers are reported to have taken the initiative in pointing to the Indian Government that it can’t expect Indian companies to be treated well abroad if multinationals are treated poorly in India.” In response to mounting pressures to loosen trade barriers, in the interests of exposing Indian firms to international competition, and promoting joint collaboration between Indian firms and firms in industrialized nations, it is conceivable that the Indian Government may gradually open its markets to international competition in the near future. Besides facilitating product quality and feature improvements, collaboration agreements are likely to facilitatejoint exploration of other Third World markets.12 It is conceivable that, similar considerations may influence many other Third World countries with high entry barriers to gradually alter their policies as well.

Conclusion The issues discussed in this paper highlight yet another dimension of Japanese ingenuity and marketing skill. Among other things it is evident that Japanese firms do not write off certain Third World markets with restrictive trade policies on the basis of what may outwardly appear to be insurmountable trade barriers. It may be desirable for manufacturers of consumer durable goods in other industrialized nations to carefully evaluate the merits of imitating the Japanese approach in their attempts to penetrate Third World markets with restrictive trade policies. However, it would be appropriate to caution that, widespread imitation of the Japanese approach by manufacturers of durable goods in other industrialized nations to penetrate protected Third World markets could possibly culminate into an scenario. If locally manualtogether different factured products were to suffer severe sales decline as a result of steady inflow of goods manufactured in industrialized nations through ~ir~lri~ou~rhann~lz o_fdistribtrtiorg such as illustrated in Figure 1, Third World governments may come under pressure from local manufacturers to undertake corrective actions. The action possibilities include: _:_ . imposing a ban or severe])- restricting placement of advertisements for products of foreign origin whose import by either individuals for personal use or by marketing intermediaries for resale is not permitted under prevailing import policies and regulations; + imposing substantial customs brought home by individuals

duty on goods returning from

1985 organized proximate

shopping countries;

tours and

of

geographically

+ restricting the types of goods and lowering the total value of goods exempted from customs duty for individuals returning from abroad. Alternatively, countries such as India, which have over a period of time accumulated substantial expertise in the area of social marketing and demarketing may choose to utilize these skills to counter the flow of imports and encourage purchase of domestically manufactured goods (for example, rmrkerirg the idea of a small family and practice of family planning and demarketing the attractiveness of a large family is one area where social marketing tools and techniques have been successfully employed by the Indian Government). In fact, many governments and interest groups in various countries world wide do employ a variety of unemployment effects of appeals-patriotism, purchasing imports, etc.-to promote purchase of domestically manufactured goods and discourage purchase of imports. However, the potential for use of social marketing and demarketing techniques towards realizing these ends, and the efficacy of tools presently employed. appears not to have been systematically explored and constitute a fruitful direction for research. Finally, a matter of tangential interest is the question of udvertisirlg_for it~formational purposes only discussed in this paper from the perspective of defining advertising goals and measuring advertising results (DAGMAR). The subject ofDAGMAR has for long been dominated by two schools of thought. One group shares the view that the task of advertising is to generate sales, and therefore, advertising goals should be stated in terms of the desired sales effects, and advertising effectiveness should also be evaluated in terms of its sales effect. The other group views the task ofadvertising as one

of achieving certain prerequisite to sales communication cffecrs such as creating brand awareness, knowledge, preference and conviction to purchase. The latter point of view is defended on the grounds that although the ultimate purpose of advertising is to generate sales, in most situations, sales is the result of the interactive effect of a firm’s decisions pertaining to a number of marketing decision variables, the actions ofits competitors with respect to the above variables, and the effects of certain the link environmental variables. Therefore, between sales and advertising is viewed as too tenuous, complicated and long-term to permit measuring its direct inlpact.‘3 Understandably, in situations such as the one illustrated in this paper, in view of the dependence of the Japanese manufacturers on a somewhat circuitous distribution system to cater to the needs of the target market, it is more meaningful to define advertising goals and measure advertising results in terms of the desired prerequisite to sale communication effects rather than the desired sales effects.

Vaulting References

Trade

Houghton

Mifflin

The Japanese

Approach

(8)

Laura Wallace, Global trade skirmish looms as restrictions on services multiply, Wall Street Journal, 5 October, pp. 1-18 (1981).

(9)

A. Chakravarti, Size and protection: synthetic fibers and yarns 28 August, in Eastern Economist, India, industry pp. M-85-M-89 (1982).

(10)

S. V. Char, Murky aftermath of decontrol, Eastern Economist, 18 September, pp. 1527-l 529 (1982).

(11)

LOUIS T. Wells, Jr., Guess who’s creatrng the World’s newest multinationals?, Wall Street Journal, 12 December, p. 22 (1983).

(12)

Richard Thomas, India’s Emergence as an Industrial Power, C. Hurst & Company, London (1982).

(13)

Philip Kotler, Marketing Management: Analysis, Planning and Control, 4th edn.. Prentice-Hall, Englewood Cliffs, New Jersey, p. 520 (1980).

(1) William M. Pride and 0. C. Ferrell, Marketing: Basic Concepts Boston: and Decisions, pp. 329-330 (1983).

Barriers:

Company,

(2)

Government of India, fmport Policy, New Delhi: Publications Division of the Government of India (1980).

(3)

Government of India, Hand Book of Import-Export Procedures, New Delhi: Publications Division of the Government of India (1980).

(4)

Ibid.

(5)

Philip Kotler and Liam Fahey, The World’s champion marketers: The Japanese, The Journal of Business Strategy, Summer, pp. 3-13 (1982).

(6)

Houston Chronicle, Plan for competing with Japan: U.S. business leaders issue report, Houston Chronicle. 23 September, p. 4, Section 1 (1983).

(7)

Business Week, Advertising: billings are up in China, of all places, Business Week, 4 June, p. 36 (1984).