Trade Negotiations

1
Trade Negotiations

• The Government-Industry Nexus
• Toys R Us Entry into Japan

2
Toys R Us - A Pioneer

• Pioneering Specialized Discount Retailer
• Model depends on high volume, broad product
  range, discount pricing, effective integration of
  information technology.
• Rapid expansion in 1970s set stage for jump into
  foreign markets

3

• More than 400 stores generated sales of more than
  1 billion by1980
• Management knew U.S. growth would slow as most
  profitable markets were tapped
• Key decision Diversify or Move into Foreign
  Markets

4
Penetrating Foreign Markets

• Company opts to test successful U.S. model in
  foreign markets
• 1983-84 Canada selected as test case.
• English speaking, U.S. neighbor, yet sufficiently
  different commercial environment

5
Getting Ready For Japan

• Successful Canadian experiment in mid 1980s
  encouraged move to Europe.
• U.K. first, then Germany and France.
• Success for TRU international business model
  premised on operations in North America, Europe
  and Asia.

6
Toys R Us Takes on the Japanese Establishment

• Japan is lynchpin of Asian markets
• Toys R Us willing to invest 100 million before
  starting operations in Japan
• Initial exploration of Japanese market began in
  1988. Led to decision to establish joint venture
  with McDonalds of Japan (80/20)

7
Seeking Leverage to Gain Entry into Japanese
Retailing

• Japanese regulation of retailing and distribution
  proved to be major barrier
• Large Scale Retail Store Law (Daitenho) designed
  to protect politically potent ma and pa
  shopkeepers
• Daitenho proved insurmountable for Toys R Us
  acting on its own

8
Using the SII Negotiations

• U.S. Japan trade tensions created opportunity for
  Toys R Us
• Structural Impediments Initiative focuses on
  distribution barriers

9

• SII launched in 1989 to address Japanese
  regulatory and other non-traditional trade
  barriers.
• Large Scale Retail Store Law (Daitenho) becomes
  SII focus and Toys R Us becomes poster child
  for SII

10
A Business Government Strategy

• Shaping entry barrier to maximize leverage with
  Japanese regulators
• Seeking allies in Japan - consumers, retailers
• Working with both Japanese and U.S. media to
  dramatize trade barrier

11

• Close interaction with USTR to pressure Japanese
  government to ease daitenho restrictions.
• Go over heads of bureaucrats and politicians.
  Appeal directly to Japanese public opinion.

12

• In June 1990, U.S. and Japan agree that daitenho
  will no longer block construction and operation
  of large stores
• Toys R Us immediately files applications for
  its first 8 stores. First store opens in
  December. President Bush inaugurates second
  store in January.

13
Implmentation of Entry Plan

• Toys R experiences strong growth in Japan
  despite deepening recession.
• Business model succeeds in eliminating middlemen,
  increasing margins and building profits.
• 100th store to open in October.

14
Toys R Us A Billion Dollar Japanese Company

• In 9 years, Toys R has invested over one
  billion dollars in Japan.
• Sales are approaching 150 billion yen at an
  annual rate.
• The company will spin off a minority interest in
  the Japanese company this year.

15
Lessons of Toys R Us Experience

• devote the time and resources needed to
  understanding all aspects of the Japanese market
• have total confidence in your business concept.

16
Lessons of Toys R Us Experience(contd)

• Have a long term strategy.
• Be prepared to weather the bumps in the road.
• Confront regulators when issues arise