INTERNATIONAL BUSINESS STRATEGY An analysis of international business environment for Daiso to enter into 4 countries, namely China, India, UK and Brazil.

1. COMM 374- INTERNATIONAL BUSINESS STRATEGY
Cassandra Prokopiw
Eric Thunem
Jialing He
Xander Zhi Kai Tan

2. Agenda
¡ Background Information
¡ Selection of Potential Markets
Strategic Importance of Market
Firm’s Ability to Exploit the Market
¡ Choice of Market for Entry
¡ Mode of Entry

3. BACKGROUND INFORMATION

4. Introductory Video
¡ http://www.youtube.com/watch?v=RPijhScLvV0
¡ 0.41

5. Daiso in Japan

7. SELECTION OF POTENTIAL MARKETS

8. Selection of Potential Markets

9. BRAZIL
Strategic Importance of Market
Moderate Market Size Moderate Market Growth
Population: 203 Million Economy Growth:
World’s 5th most populous country GDP (PPP)
$10,800 @ 3% growth rate
GDP: 2.518 trillion USD
Retail Sales Growth:
Ranked 6th
6 to 7% annually from 2011 to 2015
World's largest retail market. Consumer Spending:
Benefited by job and income
increase, credit expansion and a
relatively strong currency

10. BRAZIL
Strategic Importance of Market
Low Ease of Doing Business
• Complex legal, accounting &
bureaucratic issues Corruption Perceptions Index: 3.8
• Long & time-consuming • Lack of transparency
administrative process
Ease of Starting a Protecting Paying Trading Enforcing
Doing Business Investors Taxes Across Contracts
Business Borders
126 120 79 150 121 118

11. BRAZIL
Learning Potential
Moderate- High Presence of
Sophisticated Consumers
• Flexible and innovative
consumers
• Price and value consciousness
heavily influences Brazilian
consumers’ shopping behavior.

12. BRAZIL
Firm’s Ability to exploit the Market
High Entry Barriers Low- Moderate Firm’s local-
specific knowledge
Highly regulated & complicated tax • No previous experience in doing
system business in South America
Heavy taxes increased
• Cost of labor • Compensates by its overseas
• Consumer prices expansion experience in Asia,
Australia, Middle East, North
Bureaucratic procedures & onerous America
product licensing increase
• Cost of doing business
Fragmented nature of distribution
channels
• Challenging logistics

13. BRAZIL
Firm’s Ability to Exploit the Market
High Intensity of Competition
Fierce competition from local
and global players
1. Grupo Pao de Acucar
2. Carrefour
3. Wal-mart
Large retailers have launched
new formats (mainly discount
stores) to address lower-income
consumers’ demand for price and
convenience.

14. BRAZIL
CAGE Distance
High Cultural Distance
High Geographical Distance
• Differences in languages, • Situated very far from Daiso’s
ethnicities, religion and social headquarters (Hiroshima
norms Prefecture)
Moderate Economical
High Administrative Distance Distance
• Regulations and policies in • Enlargement of a middle class
Brazil are very different from that has a desire for Daiso’s
those in Japan consumer goods

15. INDIA
Strategic Importance of Market
Large Market Size Moderate Market Growth
Population Economy Growth
1.2 Billion GDP (PPP)
$3,700 @ 7% growth rate
GDP: 1.843 trillion USD (ranked 161 in the world)
Ranked 10th
Retail Sales Growth
Market size of US$500 billion with
expected growth of 7%

16. INDIA
Strategic Importance of Market
Low Ease of Doing Business
• Despite market potential, it is not
easy to do business in India
Corruption Perceptions Index: 3.1
• Lack of transparency
• Government protection of
unorganized retail
Ease of Starting a Protecting Paying Trading Enforcing
Doing Business Investors Taxes Across Contracts
Business Borders
132 166 46 147 109 182

17. INDIA
Learning Potential
Presence of Sophisticated
Consumers
• Introduction of Internet
increases consumers’
awareness of different
products
• Introduction of shops providing
multiplicity of choice at
discounted price

18. INDIA
Firm’s Ability to exploit the Market
High Entry Barriers Low to Moderate Firm’s local-
specific knowledge
Regulatory Constraints • Limited knowledge
• Real estate laws, relevant for • Great market to expand into
distribution centers and offices given expanding Tier-2 and
• Government resistance in Tier-3 cities
order to keep interests of
unorganized retail

19. INDIA
Firm’s Ability to exploit the Market
High Intensity of Local
Competition
- Presence of Kirana shops
- Two organized retail giants
- Pantaloon Retail (India) Limited
- Trent (Tata)

20. INDIA
CAGE Distance
Moderate-High Cultural
High Geographical Distance
Distance
• Entered Qatar and Kuwait but • Preference to work with locals
India’s culture is still distinct and • Government allows 51% FDI but
unique for one-brand shops only
Moderate Economical
High Administrative Distance Distance
• Shortage of trained manpower • Low income level but rising,
thus Daiso’s products may be
• Fragmented distribution and
appealing
retail networks

21. UK
Strategic Importance of Market
Moderate Market Size Low Market Growth
• Population: 62.7 million • Market Growth
• Growth rate: 0.56% • GDP (PPP):
35,974 @ 1.4% growth
• GDP: 2.481 trillion (Ranked 22 in the world)
• Retail Sales Growth
Size of US $469 billion
Expected growth: 15% in next five
years

22. UK
Strategic Importance of Market
High Ease of Doing Business
Low Ease of Doing Business
• Ranked 7th out of 183 countries
Corruption Perceptions Index: 7.6
• Almost completely transparent
Ease of Starting a Protecting Paying Trading Enforcing
Doing Business Investors Taxes Across Contracts
Business Borders
7 19 10 24 13 21

23. UK
Learning Potential
Moderate Presence of
Sophisticated Consumers
• Presence of established local
discount competitors who
compete on price
• Presence of higher-income
consumers who demand quality,
innovation and uniqueness

24. UK
Firm’s Ability to exploit the Market
Low Entry Barriers Moderate- High Firm’s local-
Intensity of Local Competition
specific knowledge
• Import barriers on certain food
• Previous success in Canada &
and non-food items
U.S.
• E.g. plastic kitchenware from China
and Hong Kong
• Specific products not of animal • No need for technical or sales
original under harmonized expertise
controls in EU
• Large, established distribution
network

25. UK
Firm’s Ability to exploit the Market
Moderate Intensity of Local
Competition
• Three strong competitors with large
shares of the discount retail market
• Poundstretcher
• Poundland
• 99p Stores
• Sell many of the same items
• Operations only in UK
• Target lower-income segment of
market – low quality & low price
• Less than 3500 different products

26. UK
CAGE Distance
High Cultural Distance High Geographical Distance
• Differ in language, ethnicities, • Varying density
religions, and social norms • Developed infrastructure
• Need to translate labels • Significant physical distance
• Need for local adaptation
Low Administrative Distance Low Economical Distance
• No political hostility or • Sufficient quality of
institutional weakness infrastructure, human
resources, financial resources,
• Different currency
natural resources, and
• Varying government policies knowledge.

27. CHINA
Strategic Importance of Market
Moderate Market Size Low Market Growth
Market Size 5.93 trillion Economy Growth
Population: 1.3 billion GDP growth: 10.4%
Retail Market: $2.1 trillion Retail Sales Growth: 16.3% (2011
Discount stores: $485,903.5 million Q1)
of latent demand 2011, expected Rank 6 on the A.T. Kearney Global
to grow to $788,246.02 million in Retail Development Index 2011
2016 Consumer Spending:
expected to increase by $100
billion per year

28. CHINA
Strategic Importance of Market
Low Ease of Doing Business
• Starting a business, and Corruption Perceptions Index: 3.6
dealing with construction
permits are the most difficult • High levels of corruption
processes
Ease of Starting a Protecting Paying Trading Enforcing
Doing Business Investors Taxes Across Contracts
Business Borders
91 151 97 122 60 16

29. CHINA
Learning Potential
High Presence of
Presence of Sophisticated
Sophisticated Consumers
Customers
• Large foreign investment in
retail has changed the business
environment to one involving
modern management
techniques and brand
recognition
• Very sophisticated competitors
– Wal-Mart and Carrefour
• Chinese consumers are
becoming more sophisticated

30. CHINA
Firm’s Ability to exploit the Market
Moderate- High Entry Barriers Moderate Firm’s local-specific
knowledge
• Complex business licensing • Chinese market requires a
processes and market access high-degree of local
limitations specialization
• Need to develop guanxi • Little knowledge of subcultures,
• Retail market is dispersed and mainland consumers
across large regions • Beachhead operations
• Limited knowledge of
subcultures
• Have beachhead operations
in Taiwan and Hong Kong

31. CHINA
Firm’s Ability to exploit the Market
Moderate Intensity of Local
Competition
• Strong rivalry among existing
competitors. Many small and
large retailers, and even the
large players have small
market shares (Wal-Mart only
has around 6%)
• Online shopping
• Discount store market is still
evolving and is less competitive

32. CHINA
UK
CAGE Distance
Moderate- High
High Cultural Distance Geographical Distance
• Existence of multiple subcultures • Japan is relatively close to China
• Different languages • Manufacturing bases exist in China
• Different cultures despite their • Country is large, transportation links
proximity are relatively weak
Moderate Administrative
Moderate Economic Distance
Distance
• Intellectual property rights has • Incomes are increasing
been an issue • Lower cost of labor ect.
• Negative sentiments towards
the Japanese

33. MARKET SELECTION

34. SUMMARY
BRAZIL INDIA UK CHINA
Market Size Moderate Large Moderate Large
Market Moderate Moderate Low High
Growth
Ease of Doing Low Low High Low
Business
Presence of Moderate- Moderate Moderate High
Sophisticated High
Customers
Entry Barriers High High Low Moderate-
High
Firm’s Local Low- Low- Moderate Moderate
Knowledge Moderate Moderate
Intensity of High High Moderate - Moderate
Local High
Competition
CAGE High Moderate- Moderate Moderate
Distance High

35. MARKET SELECTION
High
Strategic Importance of Market
Low
Low High
Learning Potential

36. CHOICE OF MARKET
High
Strategic Importance of Market
Phased-in Entry:
Rapid Entry
Beachhead
Ignore for Now Opportunistic
Entry
Low
Low High
Learning Potential

37. MARKET ENTRY MODE

38. Entry Mode
What type?
Greenfield operation: Why? First Launch in Shanghai
-Limited discount store - Already have a manufacturing
competition base in Shanghai
-Very westernized and developed - Highest latent demand
city ($25,335.2 million), covers 5.22% of
greater China, will almost double
-Control over operations
by 2016
-Have enough local knowledge
- Might be beneficial to try a M&A
- Restructuring of state owned retailers

39. Entry Strategy
Rapid Entry
-Local Adaptation to Chinese market
-Start in developed tier 1 cites, which have the highest
demand, and then move to tier 2 and 3 cities
-Start in East China
-Ally with distributors
-Concentrate on under- 40s
-Strengthen the brand
-Get celebrity endorsements
- Internet Shopping