Coupled with the close economic ties and dependency created by trade customs and the long structure of Japanese distribution channels is a relationship oriented business philosophy that emphasizes loyalty harmony and friendship. The value system support long term dealer supplier relationships that are difficult to change as long as each party perceives economic advantage. The traditional partner, the insider generally has the advantage.
A general lack of price competition the provision of costly services and other inefficiencies render the cost of Japanese consumer goods among the highest in the world. Indeed when you just compare paychecks at current exchange rates (that is, GDP per capita) Japanese at $39, 195 out earn Americans at $36, 790 . How ever if you take into considerations what those paychecks will buy [that is GDP per capita at purchase price parity (PPP)] the Americans at $36,665 do better than Japanese at $27,338. Such prices create a perfect climate for discounting which is beginning to be a major factor. The Japanese consumer contributes to the continuation of the traditional nature of the distributions system through frequent buying trips, small purchases, favoring personal service over price and a proclivity for loyalty to brands perceived to be of high quality Additionally , Japanese law gives the small retailer enormous advantage over the development of larger stores and competition. All these factors have supported the continued viability of small stores and the established systems; although changing attitudes among many Japanese consumers are beginning to weaken the hold traditional retailing has on the market.
Large scale retail store law and its successor
Competition from large retail stores had been almost totally controlled by Daitenho – the large scale Retail Store Law (and its more recent incarnation). Designed to protect small retailers from large intruders into their markets, the law required that any store larger than 5,382 square feet (500 square meters) must have approval from the perfective government to be built expanded stay open alter in the evening or change the days of the mouth they must remain closed. All proposals for new large stores were first judged by the Ministry of international Trade and Industry (MITI) then if all local retailers unanimously agreed to the plan it was swiftly approved. However, without approval at the prefecture level the plan was returned for clarification and modification a process that could take several years (10 years was not heard of) for approval. Designed to protect small retailers against competition from large stores, the law had been imposed against both domestic and foreign companies. One of Japan’s largest supermarket chains needed 10 years to get clearance for a new site. Toys R Us fought rules and regulations for over three years before a gained approval for a store. Besides the Daitenho here were myriad licensing rules. One investigation of retail stores uncovered many different laws,, each requiring a separate license that had to be met to open a full services service store.
Business people in Japan and the US see the Japanese distribution system as a major non tariff barrier and Japanese see it as a major roadblock to improvement of the Japanese standard of living. However, pressure from the United States and the Structural Impediments Initiative (SII) negotiations to pry open new markets for American companies has resulted in large cracks in the system. The most recent is the large scale retail store location act of June 2000, which replaced the Large Scale Retail store law.
The new law takes MITI out of the approval process. Under the new law, restrictions on the opening of large retailers near smaller shops are relaxed and the restriction on the number of days stores must be closed has been abolished. However, local government has the authority to block constructions if it thinks the new law depends on how it is interpreted by local governments. Whether they will use environmental protection as an excuse to limit new store opening and thus be more restrictive rather than less restrictive remains to be seen.