An Overview of the Japanese Wholesale Distribution System and Alternative Means to Distribution

Abstract

The Japanese distribution system has been considered one of the major barriers to entrance into the Japanese market for foreign as well as domestic producers. The United States has continuously cited the structure of the wholesale system in trade disputes and uses its inefficiency as a tool for leverage in dealing with the Japanese government. This system however has been in place since the feudal period and beginning in 1956 has been legally supported by the Japanese government with the Department Store Law. Since that time the structure of the system has become more clearly defined, but at the same time due to pressure from the U.S., is beginning to become less rigid and is being bypassed due to changes in the law. Concerning the Japanese wholesale distribution system: . The following points are often made: (1) The Japanese distribution system has many small-scale firms, both wholesale and retail, and a multi-layer structure that consists of many layers of wholesalers. (2) There seems to be a strong linkage among the domestic producers, wholesalers, and retailers. It is not easy for new entrants, foreign or domestic, to penetrate the market. ( 3, p.175) The Japanese wholesale distribution system has multi-layers of wholesalers before a product actually reaches the consumer. It is possible for a product to be sold through as many as, in some cases, twelve wholesalers or more before making its way to the retailer. Wholesalers can be classified in many ways. They are classified by the location and the market in which they operate, but are also classified by the services they provide. Since wholesalers and retailers have become interdependent, foreign producers not using the wholesale system have found it difficult to find retailers for their products. Loyalty to producer, wholesaler, and consumer, often cited as being a major barrier to trade, was also inadvertently strengthened by the Japanese government when they began to pass laws in order to protect small and medium size retailers from large retailers. Beginning in 1990 with the Japanese government's agreement to ease restrictions to entrance into the market and to change the laws regarding the Large Store Laws, foreign firms have begun to enter the market in various ways. Some retailers have chosen to use the established Japanese distribution system, but others have chosen to use alternative means to entrance. Alternative means to entrance to the Japanese market include establishing retail stores, direct marketing techniques, piggy backing, and grey market channels (parallel importation). These methods of distribution are relatively new to the Japanese market have been very successful in some cases. These new methods are beginning to take their toll upon the wholesale distribution system. Many Japanese companies are beginning to model these alternative methods in opposition to their competitors. The Japanese wholesale distribution system that has been in place since feudal times and has characterized the Japanese market as impenetrable and inefficient, but it has also made the Japanese economy what it is today. Japanese companies and the Japanese government credit the introduction of Just In Time (llT) production and Total Quality Control (TQC) to the wholesale distribution system. Wholesalers perform several functions, such as marketing and research as well as financing. This frees up funds so that companies can work on improving production and technology. This system however is becoming more inefficient as the global economy becomes more of a reality. With the recent influx of western distribution alternatives the Japanese economy will begin to change and so will the traditional Japanese wholesale distribution system.