The state of Japan e-commerce market

This blog is to give an general overview of the Japan e-commerce market as of Dec. 2013.

Please note that the stats are mostly from 2012 as the fiscal 2013 year data has not been aggregated at the time of writing.

Market stats

From 2008, Japan B2C e-commerce has continually thriving year by year at an annual rate of 9% steadily. By end of 2012, 9.51 trillion JPY has been achieved. By end of 2013, it is estimated that Japan B2C e-commerce market size will grow to 11.5 trillion JPY according to study. Being one of the largest retail and economic markets globally, the e-commerce penetration across various industries is surprisingly low, which suggests there is still much room in this market despite the already competitive e-commerce realm. While individual e-commerce startup operations often carry double digit growth, it is often due to the relatively small size. On the macro level, it is unlikely that we will be observing double-digit growth unless the e-commerce penetration rate accelerates tremendously.

When asked if one has ever used online shopping, over 90% of the respondents replied yes. Japan is one of the early adapted market for e-commerce. The form of e-commerce did not always base on PC-usage. In the case of Japan, the internet adoption was due to the advance features of cellphones during 90’s, as a result, the e-commerce in Japan was first introduced in the mobile form.

The general retail, travel, and F&B combined cover more than 33% of the entire B2C market. Foods alone covers 6.36% share, this is partially contributed by the increasing needs to stock food after 3/11 earthquake in 2011. Please note that the F&B service is different from foods, where F&B means reservation service, and foods represents grocery.

Looking from a different perspective, when asked about what type of products are purchased most frequently, print media, apparels, and food/drink/alcohol lead the top categories. The first two categories also appear as the most frequently purchased categories in other markets. Japan, being one of the frequently alcohol consuming countries, combined with the increasing needs for stocking foods, has driven the F&B categories as a frequent purchased category.

Speaking of the major consumer e-commerce platforms, there are roughly three main players in Japan. 

1. Rakuten
2. Amazon
3. Yahoo!

Rakuten is a platform that supports C2C business. Unlike the other two players, the business model is not only limited to the e-commerce platform. Rakuten in Japan has a healthy ecosystem consisted of point based CRM, EDM and most importantly the tied in financial system. Rakuten point works very much like cash, and is often appropriated to potential users for free from vendors as part of the marketing campaign. Further, merchant support from Rakuten is far more superior than others. Rakuten University is an institute geared towards educating merchants to further boost their sales.

Yahoo! Japan in order to attract more merchants to its platform, has begun offering zero commissions for all merchants. On one hand, it is a huge incentive for all merchants, on the other hand, it has been viewed that Yahoo! Japan is using its last resort to keep its foothold in this market.

The next post will be presenting the general user side of the story in the B2C e-commerce market.

Stay tuned. 

The progressive development

If there is only one take away from working at MUJI, it must be the understanding of what I call “the progressive development”, or growth at different stage.

An organisation often develops from few individuals to a team, to a set of teams, to departments, and eventually to a set of firms, or what’s called corporations. The size of resources and change of organisation is in direct correlation with the growth of the company. Under an organisation, using the BCG framework, it is not difficult to identify the golden flower. Without the existence of the golden flower, an organisation would be nearly impossible to become a corporation. Naturally and logically, when a corporation wishes to replicate the golden flower business to a different market, researches done, resources allocated, partners found, and paperworks filed prior to the entry. Even with 120% preparations efforts, often things just don’t go as smoothly as it would in the home market.

Many hypothesis or past cases suggest different market approaches, labours, or product/service perceptions are the contributing factors to the unsuccessful market entry cases. Marketing is only half of the story to an unsuccessful market development in a new environment, the other half of the story is the lack of flexibility and progressive development. Flexibility is the easier part to fix. When an foreign offering is having difficulty to be accepted in the new market, it is critical to change up the marketing story ever so slightly to let the local customers be interested. Local insights and speed of changes are required. In most cases, getting approval from HQ for changing the marketing story is not too difficult as long as numbers show success. The progressive development is, on the other hand, difficult to be grasped, or more correctly speaking, difficult to be reproduced.

Any successful business grew from a small scale of organisation to large corporations. SOPs, rules and policies often evolve in reflection of the organisation size, growth, and past experiences. Any company is likely to have only one set of policies at any given time. When entering a new market, the entry team is likely to be small and required to run the general affair side of business while running the core business at the same time. Therefore the abide rules should also be modified accordingly.  Applying the policies of an corporation unto a small firm is doing more harm than good. For any large corporation to go back in time and remember how to be a small firm is impossibly difficult without proper knowledge management. Disposing existing system or having dual standards is also out of question, but the market entry team requires loose rules and less paperworks to grant them flexibility for them to run the core business more efficiently.

While the ultimate goal is to adapt the home market core business operations and rules in the newly entered market, initially, an HQ-support model is absolutely required. The progressive development requires the HQ to readily pick up bulk of the core-business operations from the entry team. As the entry team grows, HQ will be able to propagate some of the taken tasks back to the subsidiary. As aforementioned, the new entry team will spend a portion of the time dealing with non-core business functions, in order to achieve high efficiency using the less than optimal amount of time. Before making the market entry, HQ shall develop the following functions for the entry team: simplified process, localisation support, and common backend IT system.

Simplified processes

Paper works exist to record and clarify things throughout each step of the processes. Without altering the existing processes or intermediate KPI due to market entry, less critical steps should be handled by HQ, where the resources are assumed the most abundant, thus, entry team could spend more time and acquiring new customers. Exceptions may occur if cheaper labor costs exist in the new market, where the same processes may be duplicated with cheaper costs. With timezone and multiple market entries in mind, it is a tricky balance to consolidate the work in one market for cost saving and keep local staff for immediate support due to time zone differences. 

Localisation support

The localisation support by no means is a must for any new market entry. This only means that the HQ should only prepare its processes and systems for multilingual standards. HQ should never pick up the translation work. I personally believe that only the local branch office staff can best understand and translate official materials.

Common backend IT support

Keeping inline with the ultimate goal of adapting the same processes and rules as HQ, common backend IT systems are required. Market specific exceptions may occur, the main processes and KPI should still be kept equal regardless. 

Any company no matter new or old, when entering a new market, it is seemingly to start itself all over again. There is no need for the new entry firm to walk the same path as HQ did in the home market, but becoming the same scale as HQ will also take some time, as well as the rules applied. Companies should understand the different needs and required support for subsidiaries of different sizes. Growing a company requires knowledge of both past and local. More importantly, support from HQ will shorten the time needed for the progressive development, increasing the entry team's efficiencies and chances of success for the new market entries.