Analyzing Japan's Craft Beer Market: Economic and Cultural Factors

This report analyzes the economic environment and socio-cultural trends in Japan that influence its craft beer industry, focusing on factors affecting potential business expansion. It examines both microeconomic and macroeconomic factors, including inflation rates, interest rates, tax rates, exchange rates, and the impact of recession and individual discretionary income. The report also explores the market size, demand and supply dynamics, and the competitive landscape of the craft beer industry in Japan. Furthermore, the report delves into the socio-cultural factors, such as consumer behavior, customs, and legal factors that affect the industry. The study concludes with recommendations for Australian craft breweries considering expansion into the Japanese market, offering a comprehensive overview of the challenges and opportunities within this dynamic industry. The report highlights the impact of Abenomics and government policies on the market and provides insights into how these factors influence the success of craft beer businesses in Japan.

GLOBAL BUSINESS ENVIRONMENT
GLOBAL BUSINESS ENVIRONMENT
Name of the Student
Name of the University
Author’s Note

1GLOBAL BUSINESS ENVIRONMENT
Table of Contents
Introduction......................................................................................................................................2
Japan’s economic environment affecting its Crafts-Beer industry..................................................2
Rate of inflation...............................................................................................................................4
Socio-cultural factors of Japan that influences Craft Beer industry................................................9
Recommendation on which Japan can be potentially attractive for expansion of business..........12
Conclusion.....................................................................................................................................12
References......................................................................................................................................14

2GLOBAL BUSINESS ENVIRONMENT
Introduction
The aim of this report is to focus on the economic environment and socio cultural trends
in Japan that affects the craft beer industry in Australia. The economic environment refers to the
various factors in the business market as well as the broader economy that affects the particular
industry. The economic environment is basically classified into two types that includes-
microeconomic environment and macroeconomic environment. Microeconomic environment
influences the decision making of the business organizations that involves- actions of the each
organization and consumers. On the other hand, macroeconomic environment impacts on the
whole economy and each participants. Numerous economic factors mainly act as an external
constraint on the business organizations (Prajogo, 2015). Social- cultural trends refer to the
factors that affect the business organizations. These factors include customs traditions,
consumer’s behavior of that specific country, fashion trends and activities in the market affecting
the actions as well as decisions of the business. Socio-cultural perspective has been one of the
vital factors that affect the decision of managers and the strategic target of the entities entering
international market. One of the main socio-cultural factors that influence the business
organization is the legal factors. Appropriate factor identification while analyzing the business
strategically might lead to good strategic company’s alignment to the society. This report
highlights on the economic environment and social cultural trends of Japan that affects their craft
beer industry. In this study, Japan has been chosen as the nation at which Australia’s craft
brewery industry must expand their business.

3GLOBAL BUSINESS ENVIRONMENT
Japan’s economic environment affecting its Crafts-Beer industry
Craft beer industry in Japan can achieve success in this nation owing to its diverse
beverage industry. The organic beer has been one of the Japan’s culture since time immemorial.
In addition, microbreweries have gained huge popularity since the year 1994 as it supplies
diverse tasting beers with huge style variety that seeks in matching the stress on craftsmanship,
ingredient provenance and quality. It has been noted from the recent study that Japan has been
one of the largest consumer of beer and has been ranked seventh largest in the year 2014.There
are mainly five domestic beer producers that dominates 92% of this market in Japan. At present,
these producers are now looking for investment opportunities in the overseas and produce
diversifying their products. Japan’s economic environment influences the craft brewery business
organization that operates in this nation.
Macroeconomic environment are mainly huge economic factors that affect the whole
economy and the business organizations either in direct or indirect way. These factors includes-
Interest rates, Inflation rate, Taxes, exchange rate, rate of unemployment, savings rate, recession,
depression, level of consumers confidence and discretionary income of the consumer. On the
other hand, microeconomic factors that affects the business organizations includes- size of the
market, demand, supply, rivalries, suppliers and distribution chain. The government of Japan has
introduced economic policy, which is known as Abenomics with the help of three ways that
includes monetary easing, structural change and flexible fiscal policy. This economic policy has
helped this nation in stabilizing its exchange rate, stock market, improved corporate investment
and enhanced business operations. In addition, the increase in consumption tax rate also
adversely affected the profit margin of the business. The Japanese government has also increased
the Value added Tax (VAT) to 10% this year in order to boost growth of the business.

4GLOBAL BUSINESS ENVIRONMENT
The Australian craft beer industry must focus on both the microeconomic and
macroeconomic factors before taking the decision of expanding their business in Japan’s market.
The macroeconomic factors are explained below:
Rate of inflation
The rate of inflation refers to the sustained rise in the general price level of products and
services that leads to decrease in purchasing power of the respective country. The central bank of
Japan attempts in keeping inflation within the target level for stabilizing the economic growth of
the nation. High inflation rate adversely influences the economic environment as the consumer
expenditure on products and services decreases. The economy of the respective nation slows
down owing to low consumer expenditure of commodities and services. On the contrary,
deflation refers to decline in level of product price owing to decrease in consumers purchase and
money supply (Ferraro & Briody, 2017). Although this benefits the consumers, the
unemployment level increases owing to decrease in business expenditure. The Government of
Japan has set the target of inflation rate at 2% in order to run the economy in smooth way.
Recent statistics reflects that the rate of inflation in Japan has shown slight variation over the
years and has been below the target rate. In the year 2017, the inflation rate in Japan has slightly
expanded from the previous year. As a result, the prices of breweries rise and hence the Japanese
government strategized to increase sales tax. Though the price increased slightly, it did not affect
the purchasing power of consumers. However, the craft brewing industry invests more in
producing their product and this improved their overall productivity.
Interest Rate

5GLOBAL BUSINESS ENVIRONMENT
The Bank of Japan (BOJ) has reduced the rate of interest to 0% and this made the
currency of Japan more cheaper to the business or the individuals. Due to this low interest rate,
the individuals and the business organizations preferred to keep the money in cash instead of
depositing in the bank. However, this created difficulty for the craft beer companies as they had
no means in transferring the funds from Yen (Japanese currency) to other currencies. On the
contrary, this implementation of zero interest rate has encouraged the craft brewery business in
spending or investing it in other business activities. In addition, this low interest rate enhanced
the business confidence of Japan, which in turn improved their overall productivity. Moreover, it
also encouraged this brewery firms in investing in riskier assets in order to secure return that
potentially drives new bubbles in asset. Hence, this increased the profit margin in the craft
brewery business.
Tax rate
The craft brewers mainly accounts for 2% of the total beer sale in this nation. However, it
has been reflected from recent study that tax incentives have benefitted the bigger brewery
companies and hence allowed the other substitute products in dominating the Japanese market
due to less cost (Lambert & Schwieterman, 2012). Meanwhile, the finance industry in Japan has
changed the tax rate in order to enhance competitiveness of the craft beer industry in this
country. In addition, the firms in this industry attained huge profit from the increasing tax rate as
the products were sold at high price. It has been forecasted by the some economist that leveling
of tax will increase the growth of this industry’s craft brewers in the year 2018.
Exchange rate

6GLOBAL BUSINESS ENVIRONMENT
Volatile rate of exchange in this country has put the business activities at risk. In
addition, this exchange rate has influenced the craft brewery’s operating profits that have no
international exports but this face vital foreign competition in the domestic market. As the craft
brewery industry also operates in the global market, fluctuations in currency exchange rate
adversely affects the business. However, as the firm’s exchanges beer products across borders,
this leads to involvement of two currencies. Thus, volatile exchange rate in Japan leads to profit
or loss for this particular business.
Recession
Recession or financial crisis adversely affects the craft beer industry in Japan. Recession
is the phase when the GDP growth rate, income, manufacturing as well as retail sales of the
economy declines over the certain period. During this period of financial crisis, the sales revenue
as well as profit of craft beer companies declines. As a result, the beer producer reduces hiring of
new employees in business (Kose, Otrok & Prasad, 2012). In addition, the producers stopped in
producing new beer product and this aids in attracting less number of customers in business. The
companies in this industry reduced their marketing as well as advertising expenditures, which in
turn leads to loss of new as well as old customers in the business. Moreover, the quality of beer
also declined in this nation owing to this financial crisis.
Individuals discretionary income
Individual’s discretionary income is defined as the income of the consumer that has been
left for expenditure and saving after giving taxes and for personal necessities that includes food,
shelter and clothing. It includes the amount spent on the luxury goods and clothing. As
discretionary income shrinks amid the loss in job or decrease in pay, the business organizations

7GLOBAL BUSINESS ENVIRONMENT
that sells discretionary product suffers the most during recessionary period (Wetherly & Otter,
2014). The craft beer business mainly focuses on the discretionary income of the individual
because this amount of money that the individuals have left in order to purchase the non essential
commodities and services. Due to increase in discretionary income of the individual in Japan ,
the craft beer firms attains higher profit as they purchases the beer product with their left amount
of money.
The microeconomic environmental factors of Japan that affects the craft beer industry are
illustrated below:
Market size
Market size refers to the total number of people in the particular market who are mainly
the potential customers and sellers of a specific commodity. The organizations focus on the
market size before expanding their business or launching their product in that nation. Japan is
mainly driven by middle class customers and hence is the leading nation of consumer as well as
producers of the commodities and services. However, they exerts significant influence in the
global markets. The market size of craft beer industry in Japan has been expanding over the last
few decades. In addition, the Japanese microbreweries have also expanded that was mainly
utilized in trading the craft beer product at international level (Kumar, Gaur & Pattnaik, 2012).
Eventually, the small breweries have also improved their business by producing high quality
commodities and providing quality service.
Demand and supply
The craft beer industry in Japan has a wide variety of beer types which is available at
various prices. This however means that every segment of the beer market of this nation reacts to

8GLOBAL BUSINESS ENVIRONMENT
various economic cycles. As a result, both the demand and supply of various types of beer
product changes according to the economic condition of Japan. It has been opined by Olajire
(2012), brewing industry in Japan has been considered as recession proof. During the recession
phase (2008-2009), the demand for this craft beer product in Japan reduced slightly as the
consumers switched from high expensive beer to less expensive ones. Moreover, there was no
decrease in supply of beer product at that phase. Now, in this expansionary phase the
manufacturers of this industry have increased their production owing to increase in demand for
the craft breweries and microbreweries. However, both these product have become highly
expensive due to rise in demand. As a result, the large brewers of this industry attained huge
benefits from this economics of scale.
Competitors
The competitors play a vital role in business success as increase in competition leads to
improvement in product quality. There are several competitors in the craft beer industry in Japan.
The competitors in this industry are mainly of two types that includes small breweries and large
breweries. This means that small breweries faces huge competition from the large breweries with
respect to types, quality and pricing of beer product. Owing to this increase in competition, the
small breweries develop or innovates good quality beer product at low price in order to compete
with large breweries.
Suppliers
Suppliers influences the financial performance of business in direct way. They play a
vital role in providing good quality product to the firms. This facilitates the firms in maximizing
profit and attains good reputation (Hede & Watne, 2015). It has been noted from the recent study

9GLOBAL BUSINESS ENVIRONMENT
that craft brewer industry has expanded for the last few decades due to new product development
by the suppliers. Besides producing new product, they also provides it with high quality in order
to help the firms in attracting new customers and attaining higher profitability.
Distribution chain-
Distribution chain refers to the chain of intermediaries through which the product reaches
to the customers end. This chain includes wholesalers, suppliers, distributors and online services.
These four tier distribution system provides challenges to the small brewery firms those who are
looking for expanding their business in the global market (Harrison, 2013). As the small brewery
firms invest less money in distribution chain, they cannot supply the product to all consumers
through online services. As a result, this benefitted the large craft beer firms in this industry as
they provides the product to the customers through their own website and also attain feedback
from them. This feedback facilitates the beer firms in improving the quality and design of the
new product. Hence, this distribution chain helps the large companies in attaining competitive
advantage over the rivals.
Socio-cultural factors of Japan that influences Craft Beer industry
Every business must consider socio-cultural factors of the respective nation in order to
attain high revenue from the sale of product. Change in society and peoples culture of a specific
nation influences the business and hence the firms should consider these two factors in order to
compete with their rival firms. There are various socio-cultural factors that influences the
business organization and thus the Australian craft beer company must focus before expanding
their business in overseas (Hamilton & Webster, 2015). These factors includes- changing
consumers preferences, demographics, methods of advertising, internal business environment,

10GLOBAL BUSINESS ENVIRONMENT
communication means, consumers purchasing power, education of the consumers and growth
rate of the population in Japan. These factors are illustrated in following way-
Changing consumer’s preference
One of the vital socio-cultural factors that affects the craft beer business in this nation is
changing consumers preferences. As the craft beer falls under the luxury good, the consumers
preference matters the most to the firms in this industry. It has been seen from the recent study
that the preference of the consumers has changed over the last few years. Moreover, different
styles as well as priorities of the consumers help the firms in producing the beer product
accordingly. Hence, this facilitates the firms in attaining the customer’s loyalty and trust.
Demographics
Variation in demographics has also been considered as the vital factor in the global
business market. This means that changes in gender proportion and various religious as well as
ethnic groups also have significant influence on the craft beer industry. Japan is one of the
densely populated country in the globe (Craig & Campbell, 2012). The size of population and
density of this nation is extreme and this significantly impacts on the business in host of areas. It
has been noted from the recent statistics that increase in total population in Japan positively
affects the business growth. This is because the demand of beer products increases owing to
increase in population in Japan. Moreover, gender variation also does not affect this industry as
both the female and male persons consume this product.
Methods of advertising

11GLOBAL BUSINESS ENVIRONMENT
Advertising method are closely related with the socio-cultural changes. The firms focus
on the rivalries action and target customers before advertising the product in the market (Cai &
Yang, 2014). As there is huge middle class consumer’s base in this nation, the craft beer firms of
this nation chooses to promote the products both in traditional as well as online mediums. In
addition, this enhances the growth of each firm in this industry. However, the business owner of
craft beer industry should understand the appeal of Jaapnese that dwell in the community in that
place where the firms is to site. Now, they plan their advertising method accordingly in order to
conform to their people’s language.
Internal business environment
The interaction of the craft beer company with its customers and stakeholders also
influences the decision making procedure of the organizations. The firms in this industry choose
to interact with their customers through online mediums (Babatunde & Adebisi, 2013). In
addition, the decisions of the stakeholders are taken into account while producing new types of
beer product. However, the internal business environment in this industry has been quite good
and hence this helps the company in expanding their business.
Communication means
Communication means refers to the communication style of the employees of firms
through which they interact with their customers. People from different countries are hired by
this craft beer industry of this country. In addition, the languages spoken by them help in
interacting with the customers in order to attain feedback on each product.
Consumers purchasing power