1. Why, historically, has the level of FDI in Japan been so low? 2. What are the potential benefits to the Japanese economy of greater FDI? 3. How did the entry if Walmart into the Japanese retail sector benefit that sector? Who lost as a result of Walmart’s entry? 4. Why has it been so hard for Walmart to make a profit in Japan? What might the company have done differently?
Japan, an island nation on the Pacific ocean, has none of the natural advantages that have facilitated cross-border trade and investment in other parts of the world. Also, Japan was badly defeated in World War II and occupied by Allied forces at the end of the war. Japan was totally closed to foreign investment during that period. The Japanese government sets up important barriers to reduce the foreign direct investment into Japan to develop the country by avoiding other countries’ financial shocks. Additional, the high rental and labor cost impact the Foreign Direct Investment level too. Japan as a host country, a greater FDI can result from the resource-transfer effect, employment effects, balance-of-payments effects on competition and economic growth. Walmart entered the Japanese market by purchasing large stakes in similar retailer Seiyu.
Walmart helped Seiyu reorganized the structure, implemented point-of -sale and SMART inventory tracking systems, supply-chain and distribution management systems,etc. Walmart gave a free American strategy lesson to the Japanese retail industry. Walmart also increased the the level of competition in Japan, it resulted in stimulating the developing retail industry and lowering the price of products to improve economic growth in Japan. But Walmart as a foreign investor in Japan did not make profits from 2000-2010. During the years of losses in Japan, Walmart still believed the American style retail store can grow anywhere in the world. They have made similar mistakes just like in Germany.
Walmart failed to grasp the fact that the consumer and retail environment in Japan has a different culture. In Japan, people puts loyalty on a highest value. It’s difficult to pursue the consumers from local “7-eleven” to foreign “Walmart”. “Every day lower price” strategy is not enough power to change Japanese consumers buying behavior. Japanese consumers tendency to buy smaller quantities and good packaging or appearance of goods. The quality of product also play a huge role in their purchasing decisions. For Walmart, better understanding of Japan’s culture and improving relationship with supplier may help them move forward to success in Japan.