Adidas aims to achieve the mission of being the leading sports brand in the world. They aim to achieve this by the brand's broad and unique product portfolio spanning from apparel and footwear for professional athletes .(adidas-group, 2010). It allows Adidas to address multiple consumer needs, exploit market opportunities from various angles as well as be less affected by one-dimensional market risks. Adidas commitment to product innovation and its rich heritage differentiates the brand from competitors and provides a solid platform for future growth (adidas, 2010).
Japanese Business Culture Basics
An admiration of Japanese business culture and social practices is also useful, if not required, in putting together and maintaining successful business relationships in Japan. An indifference to local business customs can show the locals a lack of commitment, and may lead to misunderstanding, a bad impression, and lost opportunities within Japan. Finally, understanding the demanding expectations of the Japanese consumer in terms of product quality, appearance, packaging and display, delivery timing, as well as after-sales service, is crucial. Adidas obviously looked into this when entering the japanese market as they do quite a lot to make sure they are line with the cultural beliefs of the locals.
Some of the things kept in mind by Adidas when entering the japanese market were,
Japanese society is complex, structured, respectful of age, hierarchical and group-oriented
A long-term approach to business relationship development is advised.
Gift giving is expected on many business occasions in Japan
Business travelers to Japan should make sure to bring a large supply of business cards (with their title) when they come to Japan; printing two-sided bilingual cards is appreciated
Japanese customers’ and business associates’ high expectations of excellence in product and service quality cannot be overemphasized.
“If you believe you have a defective adidas product that was purchased from a retailer within the last two years, please contact the original retailer. If the retailer is unable to assist, you may be eligible for a manufacturing inspection”
“This adidas Six-Month Outsole Guarantee covers eligible Barricade tennis shoes if the outsole wears out within six months of the date of purchase” – Quotes from the official Adidas website showing their adherence to the guidelines above where aftercare is concerned.
While the majority of tariffs are generally low, Japan does have some non-tariff barriers that may have an impact on commercial activity by possibly stopping or delaying the importing of foreign products into Japan. Although competition, U.S. and other foreign government pressure and other factors, have lessened the impact of these impediments, U.S. companies may still encounter non-tariff barriers in the following areas:
Standards unique to Japan (formal, informal, de facto, or otherwise);
A requirement in some sectors or projects for companies to demonstrate prior experience in Japan, effectively shutting out new entrants in the market;
Official regulations that favor domestically-produced products and discriminate against foreign products;
Licensing powers in the hands of industry associations with limited membership, strong market influence, and the ability to control information and operate without oversight;
Cross stock holding and interconnection of business interests among Japanese companies that disadvantage suppliers outside the traditional business group;
Cartels (both formal and informal); and
The cultural importance of personal relationships in Japan and the reluctance to break or modify business relationships.
Tools and methods to overcome these non-tariff barriers will depend greatly on the industry, the product or service's competitiveness, and the creativity and determination of the firm's management. The U.S. Department of Commerce's Office of Trade Agreements Negotiations and Compliance (TANC) helps U.S. exporters and investors overcome foreign trade barriers and works to ensure that foreign countries comply with their trade agreement obligations to the United States. Adidas would have had to comply with these political barriers in order to set up trade within Japan.
Economic considerations
Wage Growth
Prime Minister Abe has pressured companies in Japan to raise wages for workers, which he believes will create a circle of increased consumer spending, resulting in higher corporate profits that will create room for further wage increases. As an enticement, the ruling coalition plans to lower the corporate tax rate from 32% to 30% in April 2016. If Prime Minister Abe is successful in convincing corporate executives to spend the tax savings on wage increases, it should goose consumer spending, which should in turn boost growth.This is would be a benefit to Adidas entering Japan as they would be paying slightly higher wages overall but would be paying far less corporation tax leading to increased discretionary income for consumers and more profits for Adidas.
Value-Added Tax
Consumer spending has mainly struggled due to the 2014 increase in Japan's value-added tax (VAT), from 5 to 8%. Japan's national debt is huge as a percentage of gross domestic product (GDP), at nearly 250%, and the government needs to raise revenue where it can. The VAT is currently scheduled to increase further in 2017 to 10%. Consumers struggled quite a lot with the 2014 increase, and there is significant disagreement within the government as to whether the scheduled 2017 increase should be postponed. Consumer spending in 2016 will be closely watched as a determining factor of whether the economy can withstand another increase in the tax next year – a decision likely to be made before the end of 2016. This could have a big influence on profits for Adidas as low spending due to high VAT rates could derail their strong position within the market.
The Value of the Japanese Yen
The value of the yen has lowered approximately 30% since 2012. Japanese manufacturing competes primarily with Korean, Taiwanese and Chinese companies, and the value of the yen is a significant factor in the price competitiveness of those products. The weaker yen has made Japanese products more compelling overseas, and profits earned in U.S. dollars or euros convert back into greater amounts of yen, boosting profits.
The weaker yen has come with a cost: reduced buying power for Japan's many imports, particularly food and energy. While higher prices for imported goods helps support inflation, higher prices can also have a chilling effect on demand. The Bank of Japan must do what it can to strike a careful balance between a yen level that is weak enough for Japanese manufacturers but not so weak that it inhibits consumer demand. This low buying power caused by the value of the Yen could affect the amount of product being purchased by the Japanese from Adidas leading to the company not being able to truly maximise their profit.