Introduction
The Japanese distribution system of a market is highly significant because it is one of the primary means through which prices are set, based on the demand and supply of a commodity or services at all levels.
The distribution system adopted by different countries usually varies from one another
due to differences in domestic business culture, customer purchase behavior, socio-cultural
factors of a specific country etc.
The term “distribution system” in this context implies the system of mutually dependent organizations, such as manufacturer, wholesalers and retails, that
are involved in the process of making goods and services available for the end-users (Min,
1996).
Although many emerging economies are using unique distribution channels, this paper
will primarily focus on the distribution system of two of the world’s great economics; i.e. Japan
and China. The central focus of this paper is to provide an overview of the distribution system in
Japan and China.
Lastly, this study will also evaluate the similarities and difference between the
two distribution systems. To put it another way, this report intends to represent a comparative
study of the relative openness and effectiveness of Japanese distribution and Chinese distribution systems.
Japanese distribution system
The Japanese distribution system does not have a monolithic identity that explicitly describes its
nature. Like all the other developed economies, it also consists of diverse channels and means for
moving goods and services from manufacturers to final customers.
However, there are many features which currently identifies the Japanese distribution system, such as a large number of small retails, tight linkage and layers between and within distribution networks and so on.
Studies show that the intricacy found in the distribution system in Japan is profoundly established within the Japanese culture and socio-economic environment that underlies Japanese business practices (Min, 1996).
In the next subsection, we will look closely into such unique aspects of the Japanese distribution system and discuss each one in detail.
1) Large number of wholesalers and retailers
2) Complex layers of wholesalers
3) Keiretsu distribution
Similarities and differences between Japanese distribution system and Chinese distribution system
Large number of wholesalers and retailers
One of the main characteristics of the Japanese distribution system is the large numbers of
wholesalers and retailers participating in the market as compare to other countries. As of 2007,
the system is made up entirely of 335,000 wholesalers and 1,138,000 retailers (Luhman, 1994).
However, the presence of large numbers of wholesalers in the market is understandable if we
consider the enormous number of retailers who require their services. If we divide the total
population of Japan by the number of retails store, then we can observe that one retail store in
Japan serves 112 people. However, in the US, the total number of customers served by a retail
store on an average is twice larger than that of Japan (Luhman, 1994).
Many studies show that there is a noticeable disparity in Japan as compared to other industrialized countries, due to the presence of large numbers of small retails stores which are conveniently located in nearby residential areas (Ito et al. 1990). Such stores make up what is often referred to as “traditional portion” of retail stores that are usually found in rural areas, as well as, convenient stores that sells products in small portion. However, there are also many “large modern segments” of the retail sector, such as supermarkets, department stores etc., coexisting in the market (Ito et al.1990).
In a nutshell, there are many wholesalers and retailers in the Japanese distribution system,
where the retail industry is highly fragmented mainly because it consists of larger numbers of
small retail stores as compare to other developed countries.
Complex layers of Wholesaler
Although there are few consumer goods that usually go through just one wholesaler, the majority of products in Japan move through more than one wholesaler on their way from producer to store. For instance, it is not uncommon in Japan to have a “secondary wholesaler” or even “tertiary wholesalers” for some products in addition to “primary wholesalers”.
According to Ito and Murayawa, in the context of Japanese distribution channel, primary wholesalers could be the manufacturer’s subsidiary or a wholesaler dealing with specific brands; a secondary wholesaler is typically a regional wholesaler, and; tertiary wholesaler is the local wholesaler (Ito et al. 1990).
However, in another article by Honken Min, he mentions an additional layer of wholesalers
which come before primary wholesaler; Trading companies. Trading companies are large
wholesalers that sell a large variety of products to small wholesalers (Min, 1996).
Although Similarities and differences between Japanese distribution system and Chinese distribution system multilayered wholesale channels make goods readily available at the nearby small retails store or even at our doorsteps, this practice is often harshly criticized by many westerns because it causes the retail price to skyrocket for Japanese customers.
Keiretsu distribution
Keiretsu system is a business network system which is unique to Japan. In this business network,
different companies have close relationships and sometimes have a small equity stake of each
other, but operates individually (Ito et al. 1990). Such practices create a transparent interlink of Japanese companies and unite a large section of the Japanese economy.
One of the greatest impacts of this practice can be observed in the distribution system of the country. In the keiretsu distribution network, manufacturers develop the web of relationship with the downstream wholesalers and retailer, and such network controls product distribution from factory door to retails outlet (Min, 1996).
Since the keiretsu distribution network develops a relationship only between selected channel members and excludes the non-keiretsu company, such as foreign companies, from the competition, this practice is often criticized for creating distribution inefficiency and domination of manufacturers in the Japanese’s marketing channel (Min, 1996).
However, distribution keiretsu also offers various managerial benefits, such as information
transferring, sharing of risk and stable supply of required merchandise, yet, only to its keiretsu
partners (Ito et al. 1990).
Chinese distribution system
China is undoubtedly, one of the world’s largest and constantly growing manufacturing plant.
With so much of the product being produced in China, it raises concerns about how these
products are distributed to their end-users.
Traditionally, Chinese distribution model followed the three-tier distribution system under which only state-owned wholesalers were allowed to provide logistics services. Among the tier system, there was no competition because the performance was evaluated in terms of the fulfilment of the central administration goals and political interests.
However, today, the Chinese distribution system has evolved from a traditional planned
economic system to a mix with western market systems after the liberalization of the three-tier
system (InterChina, 2009). Still, Chinese distribution varies in many respects from supply chains
of other countries because of its unique social, economic and political structure. In the next subsections, we will primarily focus on such unique characteristics of the Chinese distribution
system.
1) Wholesalers functioning as both wholesalers and retailers
2) Warehouse-style supermarkets
3) Guanxi network
Wholesalers functioning as both wholesalers and retailers
The wholesale market of china mushroomed after the liberalization of traditionally planned
distribution channel. In China, many wholesalers can be found in nearby or in big cities, such as
Beijing, Shanghai etc.).
However, it is difficult to estimate the exact number of wholesalers in China because many of these wholesalers in the market function as both wholesalers and retailers. Officially, companies need to have a proper license to carry out wholesale and retail operations in China in compliance with the rules and regulations, however, at a practical level and local level, there is no clear distinction between the role of wholesalers and retailers (University of Southern Queensland, 2016).
For instance, if we observe the second channel in
table 1- the consumer goods flow from manufacturer to the commercial enterprise before
reaching to the end-user, we can notice that the in this channel the commercial enterprise could
be both wholesalers or retailer. Therefore, wholesalers and retailers in the Chinese distribution
system do not have seem to have a clear distinction of roles since sometimes they function as
both.
The major types of distribution channels in the mainland China:
| Manufacturer → wholesaler → retailer → consumer |
| Manufacturer → commercial enterprise (wholesale or retail) → consumer |
| Manufacturer → wholesale mart → commercial enterprise → consumer |
| Manufacturer → agent → retailer → consumer |
| Manufacturer → distribution centre → retailer → consumer |
| Manufacturer → consumer |
| E-commerce |
Hypermarkets and Warehouse store
Hypermarket, featuring a large-size retail store of size 2,500 sq meters or above and selling more
carrying at least 5,000 stock-keeping units, is creating a revolution in the retail market of China.
(InterChina, 2009). In China, customer response enthusiastically to the wide range of product
provided by the store. While foreign players dominate the hypermarket sector, domestic
companies such as Guangzhou have also created a response to this model: warehouse stores. The warehouse store comes with a similar hypermarket feature, i.e. A large stock and a lower price.
However, the warehouse stores also consist of wider floor plans and Spartan decoration, unlike
hypermarket, which helps them to slash prices even more. Additionally, China’s hypermarket and
warehouse is also a perfect example of the feature discussed above because they try to act both;
as bulk retailers servicing individual customers and as wholesalers serving the kiosks and mom-and-pop shops market (InterChina, 2009).
Guanxi network
In China, the relationship between buyer and seller is facilitated by personal relationships,
traditionally referred to as guanxi. Guanxi is a valuable resource for mutual trust and cooperation
between individuals or organizations and plays a more significant role in China than in other
countries while doing business (Arias 1998; Li, et. al. 2004) . Within the Chinese distribution
network, close relationship with the channel members (guanxi) may directly increase the level of
cooperation between the parties involved since it helps to build a mutually beneficial network
and govern exchange relationship on a long-term basis (Zhuang, G., Xi, Y., & Tsang, A,2010).
However, developing and maintaining guanxi demands a significant amount of time and effort.
Furthermore, the process of exiting from the current network is also very complicated and
problematic. Therefore, such kind of networks (guanxi) have both disadvantages and benefits.
Comparison: Similarities and differences between Japanese distribution system and Chinese distribution system
While Japan and China have faced similar challenges in transforming themselves into powerful
and wealthy countries, in terms of the distribution structure and consumer behaviour, both
counties appear to exhibit a distinctive feature. Nevertheless, corporate philosophy, combined
with strong economic relations and reliance on trade customs, is one of the similar characteristics
that both countries share in their distribution system.
In terms of distribution structure, the Japanese distribution system can be characterised as long, complicate relation-driven network, in contrast to, contemporary Chinese distribution channel, which is more short, independent and margin oriented. The density of middleman, wholesalers and retailers in the Japanese market is higher than in most of the industrialised countries mainly because the traditional distribution structure aims to serve the customer who makes small and frequent purchases.
In the case of China, the density of wholesalers and small retailers are also high; however, we do not observe any access layering of channel members like in the Japanese distribution system. Instead, Chinese businesses focus on reducing transaction cost by shorting the channel as much as possible.
One of the great examples of this practice is wholesalers acting as a bulk retailer and as
well as a wholesaler serving small retailers. Likewise, it is also necessary to understand that the
function of Chinese wholesalers and is different from that of Japanese wholesalers.
In Japan, the wholesaler is described as a professional agent or trader who deals with mere retailers rather than the public. Japanese wholesalers usually are involved in distributing the products to smaller wholesalers, retail stores, or sometimes even to foreign countries, whereas, Chinese wholesalers do not always have a clear distinction of their role in the channel and how they function.
However, the concept of keiretsu practiced in the Japanese distribution system and, guanxi in Chinese distribution system resembles some commonalities between one another. Both
principles function as the main factor to encourage long-term partnerships between dealers and
suppliers in the distribution system that are difficult to alter as long as each party perceives an
economic advantage.
All things considered, the Japanese and Chinese distribution systems differ from one another; however, there are still some commonalities in terms of business philosophy.
Conclusion
The objective of this paper was to make a comparative analysis of distribution system adopted in
two of the leading economies of Asia: Japan and China. Our finding suggests that Japanese
distribution is less effective than Chinese distribution system in term of price-fixing.
This is because complex networking and excess layers of wholesalers used in the Japanese distribution system incurs unnecessary distribution cost, causing the price of consumer goods to hype in the market. On the contrary, the Chinese distribution system emphasis on lowering the price of customer goods by making the channel shorter and less sophisticated.
However, it is significant to note that this analysis concentrates only on the retail price of the final goods and does not include other factors, such as the overall performance of the channel members, quality of services and goods supplied, labour cost etc. Further research on various depending variables, other than retail prices, is therefore needed before concluding the inefficiency of Japan’s entire distribution system
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