Sisters 3 is an U.S. exporter of innovative infant outerwear. For the last seven years, the company has been manufacturing and marketing Teddy Toes, a blanket with feet for infants up to 18 months. An American casual fashion boom has occurred in Japan. Local market conditions for children's apparel indicate U.S. exported clothing for children is increasingly popular due to good design, color coordination, and reasonable prices. It is forecasted to maintain a double-digit growth rate for the next two years, but after then, the children's apparel market size is expected to shrink due to an economic recession as well as a decrease in the number of children per household.
Sister 3's Teddy Toes product is unique and high in quality, but also high in price(in some part due to the increased costs from going through the necessary distribution channels). Young Japanese parents typically are unwilling to spend much money on an unfamiliar brand of clothing.
Japan has a population of 123 million and a GDP of approximately U.S.$5 trillion (1995), making it one of the biggest consumer markets in the world. Japan's protectionist government plays a major role in leading industries to higher value-added manufacturing. In the past, the government did this by putting up trade barriers, making it virtually impossible for foreign competition to export to Japan. The U.S. government put pressure on Japan to reform its policies, and in 1993, the "U.S. - Japan Framework for a New Partnership" was created to address many barriers foreign companies face when doing business in Japan.
A common mistake made by many U.S. firms is to use a list of importers as a basis for cold calls on prospective agents. Trust building and credit checks, a review of a agent or distributor's industry standing and existing relations with Japanese competitors, is also part of the difficult process in choosing a Japanese agent who will devote sufficient attention to expanding the U.S. product's market share. Many Japanese are hesitant to disrupt long-standing relationships with local suppliers, even when U.S. suppliers are able to offer a superior product at a lower price. Japanese retailers and wholesalers fear retaliation from existing Japanese suppliers. Another concern is that foreign suppliers may not make timely shipments or provide adequate after-sales services.
Sisters 3 had a difficult time finding the right distributor/agent for their product due to the company's lack of money, understanding of the Japanese market system, and unfamiliarity with the distribution channel. Establishing a direct presence in Japan is the best way to penetrate the Japanese market. The Japanese prefer to do business with someone only when they have been properly introduced face-to-face.
To be successful in exporting to Japan, Sisters 3 could consider a few options:
1) Intermediaries: (e.g. distributors) mean higher retail prices of Teddy Toes.
2) Direct sale: the company could consider e-commerce as a way to lower operation cost, thus providing lower prices to consumers.
3) Another option is to enter the Japanese market with a licensing strategy. For example, Sisters 3 could sell Teddy Toes through Miki House, one of the biggest and most popular children's clothing brand manufacturer and retailer. Teddy Toes would therefore bear the Miki House label, thus promoting Japanese consumers to buy a familiar brand with an established market presence.
Conclusion: Sisters 3 should have conducted more research on the market conditions in Japan, as well as options for sales (direct sale, licensing) to be successful in their export attempt.