Using theory, and scholar’s work as evidence, this essay will examine Japan as a host market for Hotel Chocolat. In order to come to a conclusion of Japan being the host country, a screening process was put in place. The screening process will allow us to narrow down countries based on pre-existing expansions, high levels of existing competition, political stability, GDP and country attractiveness. This essay will examine many internationalization strategies and explain what strategy is best suited for Hotel Chocolat entering Japan. This was done the consideration of several advantages as well as disadvantages of the market, through culture and the Japanese managerial system. After, it will examine several target markets in which are seen to be best suited for Hotel Chocolat to aim at when entering Japan.
Looking at the global statistics of the chocolate industry (Statista, 2018), it shows promising growth, which can encourage companies to consider internationalising as ” Expanding globally allows firms to increase their profitability and rate of profit growth in ways not available to purely domestic enterprises” (Hill and Hult, 2017). Currently, the chocolate industry is “dominated” by Cadbury and Nestle.
Hotel Chocolat was founded by entrepreneurs Angus Thirlwell and Peter Harris. Hotel Chocolat started selling chocolate online in 1993, becoming the UK’s first ever ‘e-tailers’ prior to the arrival of e-commerce companies such as Amazon. Several years later in 2004, Hotel Chocolat opened their very first shop. To further develop the company and meet their set goals, in 2006, Angus and Peter went ahead and purchased a ‘250-year-old cocoa Plantation in Saint Lucia’ (Hotelchocolat.com, 2018). Hotel Chocolat has accomplished many things over the years, from launching the worlds first ‘Chocolate Bond’, to opening a Luxurious hotel and spa on their plantation, to being named the UK’s ‘most advocated’ British brand in 2012.
Although Hotel Chocolat does not have a big global presence, it does have a big presence in the UK (the home country of the company) with over 150 stores. With such high level of sales Hotel Chocolat is the UK’s fastest growing private company in the UK. In November 2009, Hotel Chocolat took a risk and entered the United States and opened their first international store in Boston. Unfortunately, by September 2014 the shop was closed. The reasoning behind this was that “The company decided to go in a new direction and focus on the United Kingdom and Europe as their primary market” stated by the Previous store manager Mattew Copelan in an article written by Kara Baskin ( Baskin, 2014) (). Shortly after in 2015, Hotel Chocolat did exactly that and expanded into another part of the European Market and opened their very first store in Denmark.
Country screening and selection process
When looking to internationalise, companies implement a very selective country analysis through a screening process, to eliminate the hundreds of unsuitable countries. When done correctly, a lot of time is put into it in order to achieve the best results. Due to previous consideration, the following counties and markets will not be selected as an option for Hotel Chocolat to expand into. North America will not be considered due to their previous expansion and failure. The Middle East was also once considered by Hotel Chocolat so for that reason, it will not be considered in this report. Although Europe (UK) has shown promising results for Hotel Chocolat, it will not be considered due to the high levels of competition and already existing luxurious companies in popular countries such as Switzerland. Going through the next phase of the screening process, the elimination is now based on the remaining countries political and stability results. This stage resulted in the elimination of Africa and Latin America. Following this elimination, the highest scoring countries will then be taken into the next and final stage of the screening process which is dependent on the GDP ranking in the world. After all these eliminations, we were left with some of the following countries: Japan, China, Singapore, and Malaysia. For all the above-stated countries, a country attractiveness index was created to pick the final country in which Hotel Chocolat should internationalise in. Looking at all the possible advantages and lowest risk Japan was the most compatible country with Hotel Chocolat.
Due to Japan’s stereotype of wealthy and ‘complex’ consumers, it is assumed to be a key position in the Asian market. Focusing on Location and Ownership from Dunning’s eclectic paradigm, we are able to critically evaluate Japan’s attractiveness as a host country for Hotel Chocolat. When focusing on location we must consider the following factors: social, economic and political. Being the home for the majority of millionaires in the world, Japan is considered to be one of the world’s “financial Hotspots”, with housing consumption increasing rapidly in comparison with other countries. This is seen as an advantage for internationalization due to “high consumer purchasing power” and high demand for good quality products. Another advantage for entering into Japan is that it can be a stepping stone and can open many doors for future expansions into the Asian market. As the Asian markets continue to grow quickly and successfully they are allowing the economic integration between counties to grow. This can lead to ownership advantage which could be in reach for Hotel Chocolat to attain.
As stated by Brewer (1993), foreign direct investment (FDI) has been affected a lot recently due to government policies. Due to the removal of the trade restriction in Japan, they are now appealing to high levels of FDI. The Japanese government provides support for companies looking to invest by using a 3-step model. This allows local businesses to keep maximum access to ‘local knowledge’ from foreign companies through joint ventures.
National culture is “the set of norms, behaviours, and customs that exist within the population of the sovereign nation” (BusinessDictionary.com, 2018). National culture is seen by many scholars as the ‘qualifying’ requirement of entry into any new market but is also argued by many that there is no particular result that proves otherwise. In some other cases and studies, Japan could culturally be considered a halfway point between all countries. A study done by scholars Ronen and Shenkar in 1985, indicates that companies gain more value and benefits from encounters in different countries within the same block. This suggestion was based on the identification they made of the eight culturally homogenous blocks in nations. According to a later study done in 1996 by Barkema, Japan was not allotted a cultural block as none of the eight were suitable, which eventually lead to Japan being allotted its own private cultural block. This goes to show that it would not be easy or even possible for companies to gain first – hand knowledge of Japan. This alone should encourage Hotel Chocolat to enter the Japanese market, although it would not allow them to have an open idea of other Asian markets as suggested earlier.
When countries consider Japan as a host market, they are usually put off due to its “unique” business etiquette. Several journalists and scholars have listed many different rules to follow when taking on business in Japan, some of the following have been the most common. For example, silence is considered golden, business cards are crucial, privacy is extremely finally, the small things matter (Martinuzzi, no date). This unique business model can bring many opportunities to companies wanting to enter the market by allowing them access to their ‘high end” “wealthy” consumers. In order to examine the levels of competitive advantage in Japan, Porter’s diamond theory will be used. In comparison with other Asian markets such as China, Japan is not at an advantage economically in terms of population size and land. On the other hand, Porter states that ” a nation’s competitiveness depends on the capacity of its industry to innovate and upgrade ” (Porter, 1998). Based on the above statement, when linked to Japan we can see that Japan holds a substantial competitive advantage. Looking at figures concerning the Japanese market, in particular, the chocolate market, it is seen that the market is low but will show substantial growth (Luo et al., 2011). As it will offer low-risk entry and competitive advantage, the above figures and predictions appeal to Porter’s Diamond model as well as his five forces.
In order to understand and consider all risks, it is beneficial to consider all disadvantages. As discussed above, the Japanese market is a very culturally unique. In order for Hotel Chocolat to have a chance at success in Japan, they must adjust their management strategies to suit the Japanese management style, as well as investing time and money in assessing cultural practices and attributes. Although above the Japanese market is stated as unique when looking at Porter’s five forces, the threat of substitution is permanent in all markets including Japan. Due to the type of company Hotel Chocolat is, they are expected to face competition from other chocolate companies as well as companies in different industries such as snacks and gifts. This statement is backed by a study and report which started “confectionery products are vulnerable to the threat from substitutes such as savory snacks and fresh fruits, due to low switching costs and consumption patterns in different geographies” (Luo et al., 2011). Due to high levels of customer and brand loyalty, competitiveness within the confectionery industry is seen to be minimal. Due to customer and brand loyalty in this industry, companies do not necessarily have to focus on price adjustments and product differentiation. According to Melville and Laurense (1999), once a company has experience and is in effect in Japan, they are more likely to succeed as it is “three times harder to fail in business”. Overall, Japan is seen to be the perfect market to entre for high-quality products due to their high GDP and high spending power. Looking at all the above evaluations of the Japanese market, when taking into consideration all risks, there is no alarming reason as to why Hotel Chocolat would not succeed in Japan and gain many advantages.
In order for Hotel Chocolat to put together an ideal market strategy for entering Japan, they must consider and gain a great understanding of the confectionary industry in Japan. Japan is “one of the top ten confectionery markets in the world, with retail sales of $9.8 billion”(Agr.gc.ca, 2012). Looking at figures forecasting 2018, the confectionery industry totally amounts to $10.8 and is expected to grow by 1.6% annually (Statista, 2018). The Japanese confectionery market is controlled by three major companies: Meji Sika Kaisha, Ezaki Glico, and Lotte Group. These are locally based companies providing the consumers with sweet and chocolate-based products. In order to reduce costs, products in the confectionery market are mass produced and marketed, allowing them to generate greater levels of profit. While considering its brand image, Hotel Chocolate may consider entering the market on a small scope.
Whilst entering the Japanese market, Hotel Chocolat should consider forecasting their products at the silver market. Silver market is the semi large percentage of the Japanese population which are considered to be the “free spending” target. As Japan is seen as an aging population, this is a great market for Hotel Chocolat to be entering. As well as the silver market, Hotel Chocolat should consider targeting unmarried women as they are significantly into luxurious brands.
Entry mode and Strategy
After careful and in depth research done on the Japanese market, it is suggested that Hotel Chocolat enter the Japanese through an agent distribution model, allowing them to focus majorly on local high department stores such as Daimaru and Matsuzakaya. The agent distribution model was suggested due to the consideration of national culture companies take on bored when entering a new market and how it fits in with the company’s overall aims and objectives of the entry. It is said by Barkema (1996), that when companies consider joint ventures, they face “double layered acculturation”, which can cause issues for the company and escalate the risks. Although Joint ventures are already risky due to the amount of capital required and trust in the other company, they are seen to be more challenging with Japanese companies due to the different managerial perspectives of Japanese companies and managers , as they focus on learning rather than sharing information and providing assistance (Barkema, 1996). Regardless of these challenges and disadvantages of a joint venture, the assistance of a local brand is needed for Hotel Chocolat in order to have access to the local market and their demands, particularly in the early stages.
Although suggested above the agent distribution approach, this is not recommended as the ‘ first stage’ for internationalisation. The Uppsala Internationalization model is recommended. “The Uppsala Internationalization Model distinguishes four different steps of entering an international market… Step one: no regular export activities. Step two: export via independent representatives Step three: establishment of a foreign subsidiary Step four: foreign production/ manufacturing. ” (Zohari, 2014). In other words, the Uppsala model encourages companies to export prior to the creation of subsidiaries. The expansion process can usually be made similar for companies due to prior expansion in similar markets. Whereas in the case of Hotel Chocolat, they do not have this advantage as they have not entered similar markets to Japan, but similar to their home market (UK), which did not allow them to learn and develop within a new market. After a critical analysis of the Japanese market and the consideration of lack of experience in different markets, It Is proposed that Hotel Chocolat’s first entrance to the Japanese market should be through online comers, by putting in place and localized version of their website. This will not only allow Hotel Chocolat to expand into a new market in a safe way, but will allow them to carry out market research such as evaluating consumer and product demand and at the same time bring brand awareness for the future. There are several other benefits to Hotel Chocolat entering through e-comers, such as measuring the benefits, the risks of the Japanese market while increasing levels of exposure and obtaining in depth cultural knowledge which can be applied to their internationalization strategy.
According to scholars Kim and Hwang (1992), the entry mode is related to the companies understanding and awareness of the host market. Japan is a very different to other cultures around the world, which means companies need to take extra precaution when looking to enter and start at very low risk entry to test out the market and consumers. For example, when entering the Japanese market with an agent it allows Hotel Chocolat to avoid or minimize cultural and financial risks. Due to a minimum to none international presence this strategy seems to be the most suitable strategy for Hotel Chocolat when entering the Japanese market for the first time. Furthermore, when entering with an agent Hotel Chocolat must ensure they find an agent with a reputable reputation. By doing so, they are enabling themselves to have easy access to accessible distribution networks as well as being able to keep control on their marketing approach. Additionally, Hotel Chocolat should consider that many agents aim and priorities specific locations based on consumers, which leads to the suggestion as contributing factor to their strategy, they should selectively pick a city in which they can focus their expansion on. According to Bucckley and Casson (2003), ” It is important for a firm to choose, at the outset, strategies whose exit costs are low”. This is another advantage for Hotel Chocolat entering with an agent as they are known to have low withdrawal expenses. By securing this they are ensuring their company with any possibility of failing in this expansion an “easy way out”.
As well as the benefits discussed above for Hotel Chocolat to enter with an agent, there are some challenges. Several challenges might arise when the selected agent is working alongside another company with a conflict of interest with Hotel Chocolat. To avoid such a challenge, Hotel Chocolat should go through a selection process to ensure that the possible agent has the appropriate experience, reputation, and similar business interests. To do so and archive accurate results, Hotel Chocolat will implement the “due diligence process”.
In conclusion, looking back at the above essay, using several theories and processes such as the screening process, we were able to narrow down the many nations of the world for Hotel Chocolat to enter down to Japan. Looking above at the full analysis of the confectionery industry and Japanese market, the final suggestion is for Hotel Chocolat when entering the Japanese market, firstly was to operate as an e-comers, by duplicating their website to fit Japan. By doing so, they are entering the market at low risk and are able to gain knowledge on the local market and assessing consumer demand. Once the results have been asset based on the website, Hotel Chocolat can then continue its expansion by employing an agent. Looking at the success rates in the home country (UK) and the success they have had with their partners John Lewis, Hotel Chocolat is advised to practice a similar if not an exact strategy with a local Japanese department store. This is suggested as it will help them gain recognition in the Japanese market, which depending on the awareness can lead to recognition in other Asian markets.