Tokyo, Japan

PESTE Model & Michael Porter

Analysis
International Business Strategy Presentation
Presented By:

Cai Xinyi
Felisia Tai
K. Puvaneshwary
Tay Yee Nah
Tiffany Lim Wei Shi
Vijaya Lakshiymi D/O Palan

Tokyo, Japan Market

Tokyo, Japan Market

vCenter of the Greater Tokyo area
vConsisting of 23 central city wards

vMore Japanese getting healthconscious

vIncreasing Demand for healthier
food

What is casual dining industry

offering healthy food?
v Casual Dining
v Does not offer full table service
v Higher quality of food

v Healthy food
v Lesser oil, soya sauce
v White rice to brown rice
v Concerned with nutritional value

Political

Political System in Japan

v Japanese Diet formed on 3 May 1947
v Dominated by Liberal Democratic Party
(LDP)
v Since 1955
v Only stable party in Japan for last 4
decades

v Re-appointed Prime Minister, Shinzo Abe

v 96th Prime Minister

Stability of Political System

v Government easily replaced 96 times
v Average duration only two years
v Minority political parties reformed numerous times

Unstable
Government and ruling parties easily replaced
Policies might be write-off or changed easily

Corruption Perception Index

Corruption Perception Index

Bribery Payers Index

v Ranked 15th out of 175 countries

v Score 8.6 out of 100

v Score 76 out of 100

v Laws in Japan restrict business corruption activities

v Officials not allowed to receive facilitation payment,
limitations set on value of gifts they can receive

Ease Of Setting Up Company in Tokyo

v Starting a business in Tokyo
v 11 days
v Cost only JPY 20, 900 (SGD 230)

v Paying Taxes
v Businesses with paid-in capital of more than JPY 100 million
v Required to pay 35.64% profit tax
v Decreasing gradually from 40.6 in 2010

Advantage for businesses

Political Analysis
v Attractive Environment
v Low corruption level, simple procedures, lowered taxes
v Opportunity for business to venture into Japan, Tokyo
market

Economic

Population
v Aging and shrinking
Population
v Government revised
immigration law
v Attracts foreigners with
special skills(expertise) to
stay in Japan
IT workers
Engineers
Scientist
Researchers and etc.

v Extend work permits (2 to 5

years)

Population
v Decreasing population
Threat to businesses
o Locals have to pay higher taxes
o Consumers on cheaper alternatives to decrease expenditure

v Increasing % of non Japanese citizens,

Contribute to the economy positively
o Increase in birth rate of 1.1 children per woman to 1.8
o Japan to have a stable economy in the long-run

GDP
v Decrease in GDP
(2013 to 2014)
v Recession in the last
few months of 2013
v Increase in sales tax
(5% to 8%)
Recover Debts
Cover rising welfare
cost

v Decrease in
household spending

GDP
v GDP to decrease in the future
Sales tax to increase to 10% in Oct 2015 (forecasted by EIU)
1.8% in 2014 to 1.5% to 2015 (forecasted by EIU)

v Pose a threat to businesses

Economy weakens in the near future
Consumers purchasing power weakens
o Consumers go for cheaper alternatives as casual dining
restaurants may be pricy
Businesses may not make profits as expected

Inflation Rate
v Appreciation of
inflation( Mar to
Apr 2014)
v Increase in
consumer tax
v Bank of Japan
(BOJ) inflation
continue at 2%
form April 2015 to
2016 (Reuters)

Consumers Price Index

v Increasing trend (overall)
v CPI increased at 2%
Increase in consumer
prices
increase in costs of both
non-perishable foods
and household durable
goods

v Lower CPI in Oct

Price sensitivity

Inflation and CPI

v With an increase of inflation and
v Price Sensitivity of locals
v It poses a threat to the business
As inflation would cost of good to increase
Incur higher expenses (increase in consumption tax)
Prices of food may increase, affecting the profits

Unemployment Rate
v 3.5 4% in the year 2014
v 63.90 million people employed as at October 2014
240 thousand more employees employed
Increase by 0.4% compared to a year ago

v BOJ indicated that Japan is near full employment

v Opportunity for businesses in the short-run
More employed citizens
More people can purchase

Economic Analysis
v Crucial factor GDP growth is expected to decrease
v Increasing Inflation affecting the purchasing power negatively
v CPI is influenced by the prices of goods
v If purchasing power decrease, business can expect lesser
profits
v Economy pose a threat to any business

Socio-Cultural

Japans Youth and Children taste

and preference
v Japanese Youth are currently consuming more western food
over traditional food
v Children prefer curry, rice, pasta and hamburgers, as they are
tastier
v Influence of westernization, caused the consumption of rice and
miso to decrease by half as compared to 25 years ago
v Fast-food are widely available
v Increase in consumption of western food had caused an
increase in diet-related diseases and obesity

Japans Youth and Children taste

and preference
v Threat to casual dining industry
Fast foods are widely available
Tasty and delicious
Make efforts to stay differentiated (may increase costs)

v Opportunities for casual dining industry

Cater to the young generation with customisation of western
food that are healthy and delicious

Rising health conscious trend and

healthy eating
v The speed of aging population is
much faster than the western
countries
v Japans aging population (65
years and above) has doubled
within 24 years
v Western countries took at least 60
years to see the aging population
to double up

Rising health conscious trend and

Healthy Eating
v Growing aging population and life expectancy of Japanese
v Tokyo has a high proportion of 18.9% retired people who are
aged 65 and above.
v Life expectancy for the men is above world average; Japanese
women have the longest expectancy life in the world.
v Japanese are spending more money on health related products
and services.
v Researchers findings Japanese healthy eating habits could help
an individual live up to 100 years.

Rising health conscious trend and

healthy eating
v In the future, more citizens to be health conscious
v Increases the demand for eating healthy
v Opportunity for the casual dining industry to cater to more
citizens
v This will encourage the industry to grow further

Socio-Cultural Analysis
v Socio-culture factors makes it an attractive for foreign
investors to enter
v With the increasing westernised taste of young
generation in Japan
v The rising demand of health-consciousness among
Japanese

Technological

Infrastructure
v Currently, Tokyo has a well-established infrastructure such as
transport that has 1,052 km of railway tracks
v Train is considered to be one of the worlds fastest
v Domestic airport, which cost $225 million as a hub low-cost
carrier

Infrastructure
Summer Olympics in 2020
v Massive investment was used to improve its
infrastructure.
v building its first bullet train, completing
highways, improving ports.
v Sum of USD$4,542 million (JPY537, 040 million)
as Hosting Reserve fund

Labor Force
v Shortage of labor, due to its aging
and shrinking population.
v 68.2% of its population is working
age, from 15 to 24 years old
v Labor-intensive industries such as the
Food and Beverage Industry facing
heavily understaffed problems
v 116,000 job openings are left vacant,
for 45,000 job applicants in April 2014

Labor Force
Impact
v labor costs are rising rapidly in order to attract and retain
employees
v Businesses will have an intense competition for manpower

Solution
v government is offering a selected number of Tokyo job
center have special desks for women who want to enter
into the workforce after having babies, and training will be
provided

Environmental

Natural Disaster
v Since 1923, Japan has been experiencing natural disasters,
commonly earthquake and also Tsunami in the past decade
v Wiped out most of their infrastructures such as electricity lines,
roads and etc.

Natural Disaster
Fukushima accident
v Damage of nuclear plant affected the lives of the people
v Fishing industry declined as the radioactive contamination
affected the marine life causing water pollution

Air Pollution
v Tokyo air pollution readings during late February were
extremely high
v Pollutions from neighboring countries such as China would
impose environmental damage to Japan
v This issue has been occurring since three decades ago
v These environmental issues cannot be avoided but
controlled; businesses will be exposed to this unavoidable risk.

Michael Porters
Analysis

Bargaining Power of Buyer

Market Size
v Japans Total Population Size: 127,103,388
v Tokyo Worlds most populous city
v Businesses operating in the casual dining industry that offers
healthy food are targeting the working population who are
health conscious

Purchasing Power
v GDP per capital (PPP) attained its peak at SGD 46,196.27 over
the last 10 years
v Positive Increase Country is doing better, citizens getting
higher pay, higher standard of living
v Consumer Price Index increased - consumers are willing to
pay a higher price for a basket of goods and services
v Businesses charge higher pricing

Bargaining Power = Low

Price Sensitivity
v Consumption tax increased from 5% to 8% in April 2014
v Affect decisions to purchase items
v Standard of living in Japan: High (7th most expensive city)
v Relatively concerned when spending on goods and
services

Bargaining Power = Medium - High

Increasingly Health-conscious
v Go for frequent check-ups and are careful with their
diet and food intake
v Seek for healthier products in the market

Bargaining Power = Low

Threat of New Entrants

Economy of Scale
v Tokyo > 1,000 restaurants, bakeries to wine bars
v Growing presence of several strong competitors Soup
Stock Tokyo, Subway
v Supply of the casual dining restaurants that offers healthy
menu: High
v Demand: Increasing

Threat = Medium

Capital Requirement
v Business start-up capital - JPY 5 million (SGD
55,000)
v Considerably complicated to set up a business
in Japan for non Japanese
v Large amount of capital is required for setting
up a business in Japan

Threat = Low

Government Policy
Lack of Support from Local
Bank

Strict Rules and Regulations

v Japanese banks hesitate to

proof a capital for a foreign
creditor

v Official permission from the

Japanese health
department

v Issue loans and mortgages

only to Japanese citizens,
permanent residents or
foreign nationals with a
Japanese spouse

v Few significant local

institutions are still hostile and
do not easily trust these
foreign businesses

Bargaining Power of Supplier

Ingredients
v Doubling exports of Japans seafood to 1 trillion
yen
v Increase exports of Japanese food to 5 trillion yen
v Hong Kong largest imports of Japans exports with
about 20%
v Able to export to other country = more than
enough for domestic supply

Bargaining Power = Low

Labour
v Shortage of low-wage workers
v Companies increase salaries to raise
productivity & retain staff
v Up to 9,000 yen (SGD$98), triple the amount in
2012
v Local businesses afraid to expand

Bargaining Power = High

Land Property
Year

Increase

No change

Decrease

2012 Q3

22.70%

58%

19.30%

2013 Q3

71.40%

22.70%

6.00%

2014 Q3

82.60%

17.30%

None

Prices of land might increase due to:

v Government intervention (to earn from foreign
investments)
v 2020 Summer Olympics

Bargaining Power = High

Government License
v Official authorization required from the
Japanese Health Requirement
v Easy to obtain as long as rules and regulations
are followed

Bargaining Power = Low

Overall bargaining power of suppliers

Bargaining Power = Medium
vFactors with high bargaining power will affect the
profitability of the whole industry.
vHowever, the prices of ingredients and no strict
government inventions lower the bargaining power to
medium.

Threat of Substitutes

Convenience Stores
v Widely found In Japan; about 40,000 stores.
v 24/7 in operation
v Wide variety of food sold, ranging from meals, snacks, onigiri as
well as lunch boxes.
v Price = SGD$1.160 to $5.50
v Increasing trend of sales of bento and readymade side dishes.

Bargaining power = medium

Fast food Restaurants

v Deliver speed and convenience to
consumers
v Having drive-through and takeaway
services
v Price range = SGD$3.30 to SGD$16.50
v Unhealthy and lower in quality, leading to
altering of menu to suit the healthy lifestyle
of Japanese.

Bargaining power = medium to high

Fine Dining
v Full service Restaurants that serve specific meal courses
v Served in slow pace
v Price range = SGD$165.90 and above
v For people who seek social status, but not suitable for the fastpace japan.

Bargaining power = medium

Overall bargaining power of

substitute
Bargaining Power = Medium
vEven fast food and convenience stores has been an
popular choice for dining, however it does not cater to
the healthier options.

vFine dining on the other hand are costly and unable to

cater to lifestyle of Japanese

Intensity of Rivalry among

Competitors

Existing Competitors
v 15 outlets in Tokyo and 70 all over Japan.
v Collaborate with Japan Airlines
gain wider recognition

v Large size with large market share powerful competitor

v 112 outlets in Tokyo

Interesting concepts with vegetable grown in some of the stores

v Producing own bread locally suits local taste

v Strong player through innovations.

Current Market Size & Growth Rate

v 711,733 establishments in accommodations, eating and
drinking services industry in 2012.
market size has shrunk as many players have existed.

v An increasing no. of Japanese have healthy diets and are

getting more health-conscious.
v Although market size shrunk but an increasing growth rate of
market size demand for healthy goods, turns the intensity of
rivalry to be medium low.

Brand Loyalty
v Japanese famous for being loyal towards local brand.
v Soup Stock Tokyo has been in Japan market for 15
wider acceptance

v Challenging for new businesses to win customers due

to this behavioral pattern
higher intensity in rivalry towards building a customer
base.

Rating for Intensity of Rivalry

vHigh
v Many competitors and is dominant by powerful
ones in the shrunken market size.
v Brand loyalty makes Japanese unlikely switch
away from their preferred brands.

Conclusion

PESTE

Michael Porter

v Current economy may not be

favorable expected to recover
(Summer Olympics in 2020)

v Threat of new entrants: medium

v Natural disasters are unavoidable

put in place contingency plan.

v Power of suppliers: medium

v Relatively easy business procedures

offered by govt.

v Threat of substitute: medium

v Well-established infrastructure in
Tokyo.
v Rising trend of westernization &
increasing demand for healthy food
v Attractive market for businesses to
venture in.

v Power of buyer: low

v Intensity of rivalry: high

v 5 forces: medium

Recommendation
v New entrants are to innovate their products
Customization

v Shortage of labor
Provide benefits (health check) instead of monetary basis

End

Thank you!