Case Study Analysis: Toys R Us' Entry Strategy and Challenges in Japan

This case study examines the challenges and strategies of Toys R Us' entry into the Japanese market. The analysis focuses on whether Toys R Us' U.S. retailing format would be successful in Japan, considering cultural differences and market dynamics. The study explores the company's decision to use a strategic alliance as its international entry mode, contrasting it with alternatives like franchising, Greenfield investments, and acquisitions. The case highlights the importance of understanding cultural barriers, local market preferences, and the competitive landscape, including established relationships within the Japanese toy industry. The strategic alliance with McDonald's is presented as a key factor in Toys R Us' ability to navigate the complexities of the Japanese market. The study concludes that while the Japanese market has high potential, the company's initial strategy might not have been the most effective without adaptation.

Case Study
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1. Toys R Us’ retailing format has been successful in the U.S. Is there any reason why this
selling format wouldn’t work as well in Japan as it does in the U.S? Should Toys R Us enter
Japan? (are the benefits of entry worth the inevitable costs/risks)?
The retailing format of “Toys ‘R’ Us” has been successful in the US due to its discount formula
and its customer-centric approach. However, it may not work the same in Japan as the people in
Japan in resistant to foreign products. They are more loyal for general stores and retailers from
the neighbourhood and their preference is high-quality products instead of low prices. Further,
the retailers in Japan offers underemployment to the local people who otherwise would be
unemployed. Fragmentation and long-standing relationships are the roots of the toy industry in
Japan and therefore the manufacturers resist to enter into any relationship with “Toys ‘R’ Us”.
The congested streets in Japan would also make it difficult for the company to find space for
opening large stores (Spar, et.al., 1999). Therefore, the company must not enter the Japanese
market and in particular with its existing strategy, as this strategy would not be able to benefit it,
as in other countries. However, it may consider tapping Japanese market using other strategies as
the market has high potential for toys.
2. Toys R Us’ operation in Japan is somehow different from what it is doing in the U.S. How
do you assess the international entry mode adopted by Toys R Us- using strategic alliance
as compared with other entry modes (ex. Franchising, Greenfield, acquisition, etc.)?
The biggest challenge faced by “Toys ‘R’ Us” in Japanese Market were the cultural barriers. The
company entered the Japanese market through a strategic alliance with McDonald's. This helped
the company in taking advantage of retail experience, political influence, vision and a unique
understanding of the culture of the Japanese market. It proved to be an excellent strategy for the
company “Toys ‘R’ Us”. Alternatively, the company could have considered other entry options
but they may not prove to be as successful as the alliance (Spar, et.al., 1999). Franchising is a
mode to enter in the new international market but it could not have been worked for the company
due to cultural barriers and different regulations and policies. The employees of the company, in
such case, could have suffered due to different working conditions and a different policy for
wages. Therefore, the most effective and secure method for “Toys ‘R’ Us” to tap the Japanese
market was a strategic alliance.
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References
Spar, D., MacKenzie, J., and Bures, L., 1999. Toys "R" Us Japan. Harvard Business School.
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