Bookselling Industry in Japan Individual Integrative Case essay

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Bookselling Industry in Japan

Individual Integrative Case Study: The Japanese Bookselling Industry

This paper focuses on the Japanese Bookselling industry. Under this, it analyzes two successful firms, Bookoff and Amazon. These firms overcome the implications of Saihan Systems using unique ways, making them to achieve a competitive advantage over other firms.

There is a reduction in the number of firms in the bookseller retailing industry in Japan. This is because of many reasons. First, the Saihan System, which makes it mandatory for publishers to fix prices of books before selling them to the retailers. The effect of this rule is that large retailers no longer push other firms out of the industry due to price.

Despite the imposition of Saihan System on the bookselling industry in Japan, both Bookoff and amazon have overcome its implications. The two are doing so through use of unique methods making them have competitive advantage over other firms in the industry.

Table of Contents

Abstract

Executive summary

Table of Contents

List of Tables and figures

Background

Problem Statement

Analysis of the Problem

Alternatives and Criteria Selection

Recommendations

Action Plans

References

List of Tables and figures

Table 1: Number of bookstores in Japan & U.S.

Figure 1: Chain of book distribution

Figure 2: Decrease in books and magazine sales

Background

Retail bookselling in Japan has a large market in the country. The retailers get books from the wholesalers who get from the publishers as shown in figure 1. Nevertheless, its profitability as well scale of sales is relatively low. This is because of various reasons. First, the emerging popularity on the use of internet poses a substitute for books (Peng, 2010). This results to the decrease of sales of books. Current study shows that people are using the internet more than they are reading books. Secondly, rise in internet is resulting to increase in online books sales (Peng, 2010). However, this is not the case in Japan as the Japanese dislikes purchasing books online due to possible theft. Lastly, lack of consolidation of book selling industry because of introduction of Saihan system in the country is a major cause of the retardation in the industry

Publisher Wholesaler Retailer

Figure 1

Current research indicates a 20% drop in industry sales over the last 10 years. Entry into the bookselling industry by new entrants was not successful due to the dynamics in the industry. Japanese are enthusiastic readers and reading is part of their culture. Despite the relatively small population, Japanese Book sales exceed that of the United States. The table below shows the number stores in both countries

Country

Number of stores

Japan

17000

United States

11000

Table 1

Currently, the country has over 1700 retail bookstores, of which majority are relatively small stores distributed evenly all over the country. With modern and efficient public transportation network in the country, majority of Japanese use public transportation for going to school or work. Reading during transportation is a public phenomenon in Japan.

The existence of many book readers in Japan makes the books selling industry in the country prone to stiff competition. Old book selling industries in Japan enjoyed great benefits before the imposition of the ban on new entrants regarding the discounting of books (Peng, 2010). This became a great threat to new firms wanting to join the industry (McClure, 2000). Nevertheless, this is not the case with Amazon Japan and Bookoff. These new entrants managed to establish themselves in the industry with significant success.

Problem Statement

Japan has a large market for retail bookselling industry. According to current research, the retail bookselling industry in the country has an annual sale of approximately 8 billion U.S. dollars (Peng, 2010). Although there seem to be good opportunities for retail bookselling companies in the country, there are several things that should be put into consideration before investing in the industry especially the Saihan System. It has a significant impact on both internal and external firms (Peng, 2010). While some retailers are gaining advantages from the system, others are requesting an abolishment.

The profitability of large retail booksellers in Japan is relatively poor and their scale is relatively small. Although there are several reasons behind this, the imposition of Saihan system is the primary cause (McClure, 2000). This system is price-fixing and it makes it illegal for more efficient and larger competitors to make use of price competition in order to drive out small competitors in the market (Peng, 2010). This system allows the publisher to fix the price of new books, newspapers, magazines, and music in the bookselling industry. This makes it impossible for the competitors to compete with regard to the price of these things.

Because of imposition of Saihan system, the book selling industry in Japan has stagnated. Figure 2 shows the decrease in sales of books and magazines from 2007 to 2011). In addition, it has led to reduction in profitability of large chains as well as small stores. In addition, due to the undifferentiated books in various stores across the country, price is the only way to compete. Nevertheless, this is illegal. The entrance to bookselling industry is low although small entrants can enter the industry quite easily.

Year

Figure 2

Analysis of the Problem

Saihan System is protectionist system in price, which introduces laws, which allowed publishers Japan to set fixed prices on books and other related products to avoid monopoly, while encouraging perfect competition in the bookselling retailing industry (Peng, 2010). There are several systems for individual companies as well as industry to participate in the Saihan System. The system protects smaller booksellers against large retailers in the country from being forced out of the market. The Saihan System does this by making discounting illegal. In addition, the Saihan System promotes perfect competition in the country, lowering the entry barrier to the industry for new entrants. More, over research indicates that the Saihan System has increased the number of booksellers as well as publishers in the country.

The Saihan System encourages the publishers in the country to publish more titles that are new. In 2005, publishers in the country published more than 76,000 titles. While publication of new titles is increasing every day, the average sale per title is decreasing. The publishers have to spend a lot of money on publishing larger amount of titles although they make a little profit on each of the title (Strom, 2000).

Nowadays, there are many substitutes for customers to choose instead of purchasing new books from the retailers. These substitutes include, E-books, second -hand books and rental books. When it comes to second-hand books, it is true that there are a lot of them in the bookstores in the country. Therefore, the consumers can buy books from the second-hand books retailers in the country. The books are cheaper as they are exceptional from the Saihan System (McClure, 2000).

The establishment and implementation of the Consignment Resale System enables retailers to return unsold books to the publishers free of charge (Peng, 2010). This further fosters booksellers to provide space to new titles as well as books of less known authors. Nevertheless, there are severe costs to the industry as well as individual companies. The Saihan system minimizes competition of retailers in the industry to the lowest level (Peng, 2010). The repercussion is the condition that there is a small room for product differentiation in the industry.

Alternatives and Criteria Selection

Despite the negative implications of Saihan System on the bookselling industry in Japan, both Bookoff and Amazon are successful (Peng, 2010). Their success is because they use strong strategies enabling them to attract customers and avoiding the price fixing system, which can restrict them from maximizing profits while minimizing costs.

Bookoff buys old books from its customers at 10% and later sells them at 50% of its list price (Bookoff corp, 2004). The company does this by recycling old books and making them new again. Second-hand books are more popular in the country due to the financial hardship gone through by the citizens. The company obtains full support from all over the country (Bookoff corp, 2004). This is because the company takes a significant part in environmental sustainability through recycling of books. In addition, Bookoff helps in preservation of knowledge as ancient but resourceful books are no longer published (Bookoff corp, 2004). To the public, the company is offering a moneymaking opportunity as people are generating income through selling of old books to the company.

Bookoff, has many branches in various parts of the country (Bookoff corp, 2004). This makes it hard for its competitors to imitate it. In addition, the firm has other strategies that make it gain competitive advantage in the bookselling industry. These include employment of highly trained staff, use of advanced technological knowledge, strengthening of customer relationship and increase in its manufacturing capacity (Strom, 2000). The company also builds its brand name besides using loans to expand its business (Bookoff corp, 2004). Nevertheless, the firm is likely to incur significant losses in the…[continue]

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