Assessing the feasibility of ex- panding eBrands Global Oy's business to Amazon Japan - Chih-Yu Kohonen - Theseus
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Assessing the feasibility of ex- panding eBrands Global Oy’s business to Amazon Japan Chih-Yu Kohonen BACHELOR’S THESIS May 2022 Bachelor’s Degree Programme in International Business
ABSTRACT Tampereen ammattikorkeakoulu Tampere University of Applied Sciences Bachelor’s Degree Programme in International Business KOHONEN, CHIH-YU: Assessing the Feasibility of Expanding eBrands Global Oy’s Business to Ama- zon Japan Bachelor's thesis 65 pages, appendices 3 pages May 2022 The ecommerce market in Japan is attractive because of the high ecommerce penetration rate in the country. However, it is not easy for foreign businesses to enter the market due to the language barrier and differences in legislation, taxa- tion and culture in general. The objective of this study was to gather information about the feasibility of eBrands Global Oy to expand its business to Amazon Ja- pan. The thesis was carried out as a case study for one of eBrands Global Oy’s brands called Asebbo and its three types of insulated waxed canvas lunch bags. This study explores the aspects that need to be investigated before entering a new market. The working methods are PESTEL analysis, demand and competi- tion analysis, SWOT analysis and cost and profit analysis. Both quantitative and qualitative data were used for exploring the feasibility of expanding the business to Amazon Japan. The quantitative data was obtained via two market intelli- gence software solutions that provide the keyword search volumes, estimated monthly sales and the competitors’ estimated revenue. Analyzing this data pro- vided information about the overall demand and competition level in the target niche. However, the data provided by these tools has a margin of error and un- certainty which needs to be considered especially in smaller markets like Ama- zon Japan. The qualitative data included industry news, customer reviews and governmental organizations’ websites. The results show that well-known brands and cheaper products are favored by the customers in the target niche. The segment is too competitive because there are 60,000 products listed and their average price is much lower than the Asebbo products used in this case study. The brand used for the case study might not be suitable for Amazon Japan in terms of the profitability unless the manufacturing and shipping costs can be reduced. However, it is possible for eBrands Global Oy to expand its business to Amazon Japan with products that have a higher profit margin. Moreover, further research for branding is required as it was noticed that being recognized as a well-known international brand sig- nificantly impacts the Japanese consumers’ purchasing decisions. Key words: Amazon, Japan, ecommerce, PESTEL, SWOT, export
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CONTENTS
1 INTRODUCTION ................................................................................... 4
2 OBJECTIVES, CONCEPTS, WORKING METHODS ........................... 7
2.1 Objectives ....................................................................................... 7
2.2 Concepts and theory ....................................................................... 7
2.3 Working methods and data ............................................................. 9
2.4 Thesis process .............................................................................. 13
3 STRATEGY ANALYSIS ....................................................................... 14
3.1 PESTEL analysis .......................................................................... 14
3.1.1 Political ................................................................................ 15
3.1.2 Economic ............................................................................. 16
3.1.3 Social ................................................................................... 16
3.1.4 Technological ...................................................................... 19
3.1.5 Environmental...................................................................... 20
3.1.6 Legal .................................................................................... 21
3.1.7 Summary of the PESTEL analysis ...................................... 26
3.2 Niche and competitor analysis ...................................................... 27
3.2.1 Segmenting the market and demand analysis .................... 27
3.2.2 Competition analysis on Amazon Japan ............................. 29
3.2.3 Analyzing the reviews .......................................................... 31
3.2.4 Competition outside Amazon Japan .................................... 34
3.3 SWOT analysis ............................................................................. 36
4 Cost and profit analysis ........................................................................ 40
4.1 Product investment costs .............................................................. 40
4.2 Amazon fees ................................................................................. 40
4.3 Tariffs and consumption tax .......................................................... 42
4.4 IOR, customs clearance and listing translation costs.................... 43
4.5 Cost and profit calculation ............................................................. 45
5 RESULTS SUMMARY ........................................................................ 48
6 CONCLUSIONS AND DISCUSSION ................................................... 51
REFERENCES.......................................................................................... 57
APPENDICES ........................................................................................... 63
Appendix 1. Tariff for importing insulated bags from China to Japan (HS
code 420222.200) ......................................................................... 63
Appendix 2. Internationally recognized product care symbols ............. 64
Appendix 3. Customer reviews of the top five competitors’ products .. 654 1 INTRODUCTION In 2021, the number of ecommerce users in Japan reached 100 million and the ecommerce penetration rate was 80 %, while corresponding figures in Finland were four million and 72 %. In addition, the net sales of the top 100 Japanese online stores were 34 billion euros and the growth rate was 56 % in 2020 while the figures in the same period in Finland were 2.7 billion and 70 %. (Eden, Hoyer, Niemeier & Peters 2021a, 5; Eden et al. 2021b, 5.) Although the growth rate in Finland was higher than in Japan, the ecommerce scale in Japan is still larger. The percentage of domestic sellers on Amazon Japan is 67 % which is much higher than on Amazon USA (50 %) (Kaziukenas n.d.). This indicates there are some obstacles that prevent foreign businesses from entering Amazon Japan. According to a recent survey titled Leading Challenges of Businesses Selling Overseas over E-commerce Platforms in Japan as of 2020 (Diep 2021a), 50.3 % of the respondents saw the lack information on sales destination as the biggest concern, and other major challenges were difficulty of increasing the brand awareness (42.5 %) and price competition (39.3 %). This thesis is a case study. The author (an eBrands Global Oy employee) se- lected one brand under the company to investigate the feasibility of expanding the business to Amazon Japan. The brand is called Asebbo and its products are reusable and insulated waxed canvas lunch bags which are made in China. Expanding to Amazon Japan is a long-term target for eBrands Global Oy. How- ever, it has not been as easy as expected due to the regulations, taxation and cultural differences. The thesis focuses on gathering information on the regula- tions related to importing products to Japan and competitors in the target niche, as well as making a profit and cost analysis. In order to focus on assessing the feasibility, this study will not investigate on increasing brand awareness in Japan. However, the social aspect discussed in chapter 3.1.3 revealed some aspects of consumer behavior and Japanese culture which can work as the basis for devel- oping the branding strategy in the future.
5 eBrands Global Oy was established in Finland in 2021. Its business model is acquiring small to middle scale brands that are selling on Amazon and then to improve branding and revenue by adapting professional Amazon selling and mar- keting tactics. Additionally, the target brands should match the concept of being eco-friendly. The company has 18 brands registered in Amazon’s international markets and is selling products in the US (United States), UK (United Kingdom), Germany, Spain, Italy, France, the Netherlands, Poland and Sweden. (eBrands Global Oy 2022.) Amazon is the main sales channel for eBrands Global Oy. Selling via Amazon is easier than setting up your own webstore for each one for sellers trying to reach international customers because Amazon provides a service called Amazon Global Selling. The seller can register to this service and open seller accounts in different market areas and sell products internationally. Currently available mar- kets are Europe, North America, Japan, Australia, Middle East, Singapore, Tur- key and Brazil. (Amazon 2022c.) There are several fees the seller should pay attention to when planning to sell on Amazon. These include the seller account subscription fee, the referral fee charged per item sold and the fees for sellers who sell through FBA (Fulfilment by Amazon) service. (Amazon 2022b.) All the fees mentioned above might vary in different markets and by product size and category. The detailed introduction and the exact costs that are applied to this case study will be discussed in chapter 4. FBA is a logistics support offered by Amazon. Sellers who use the FBA send products to Amazon’s fulfilment centers first. Amazon will be responsible for stor- ing, packing and shipping the products to customers. For FBA sellers, Amazon also handles the exchanges, product returns and customer service in the local languages. (Amazon 2022a.) FBA service is suitable for sellers who do not have a warehouse in the target market and need fast delivery. Amazon delivers the products within 2–3 days on average for normal buyers. Customers subscribing for Amazon Prime membership have options for 2-hour, same-day, one-day and two-day delivery. Sometimes Amazon holds promotional
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events and provides free one-day or same-day delivery depending on the area
and product category. (Amazon 2018.)
Fast delivery, product insurance and tracking have a big impact on the buying
decisions in Japan (Asia Pacific Foundation of Canada 2018). Therefore, if the
seller does not have a robust logistics system, it is recommended to use FBA to
sell on Amazon Japan to ensure customers can receive products within a short
time and the orders are easy to track.
Asebbo, the brand selected for case study in this thesis, has three types of insu-
lated lunch bags. On the left is the tote-type insulated lunch bag, the middle one
is the two-way insulated lunch bag which has an adjustable strap and a handle,
and the last is the zipperless insulated lunch bag. (Picture 1.)
Tote-type two-way zipperless
PICTURE 1. Asebbo’s insulated waxed canvas lunch bags (Asebbo 2022)
Asebbo’s insulated waxed canvas lunch bag has a double-layer design made of
wax and aluminum. This design ensures the food can be kept cold or warm up to
4-6 hours. It also makes the bag waterproof, durable and easy to clean.
There are several reasons for choosing Asebbo for the case study. The first rea-
son is that an insulated lunch bag is not a very seasonal product. As exporting to
Japan might take longer than expected due to the legal requirements, it is safer
to start with a non-seasonal product as a test. Also, it does not directly touch food
or human skin – these usually have stricter import restrictions and Amazon would
also require the seller to provide a certificate that proves the product meets the
safety requirements (Hayashibe 2022).7
2 OBJECTIVES, CONCEPTS, WORKING METHODS
This chapter first introduces the main objective, the main theory and sources used
for developing the thesis concept. It also demonstrates the working methods and
data collection. The last part of this chapter describes the thesis process and
summarizes each chapter’s contents.
2.1 Objectives
The main objective of the thesis is to assess the feasibility of expanding eBrands
Global Oy’s business to Amazon Japan. The objective can be achieved by an-
swering the following four questions.
1. How is the current ecommerce situation and consumer behavior in Japan?
2. What are the specific legal and taxation requirements when selling on Ama-
zon Japan?
3. How is the competition in the target niche and what are the strengths and
weaknesses of eBrands Global Oy compared to the current top sellers?
4. How profitable would selling Asebbo insulated waxed canvas lunch bags on
Amazon Japan be?
The first and second questions are answered using the PESTEL analysis in chap-
ter 3.1. The third question is answered with the niche and competitor analysis in
chapter 3.2 and the SWOT analysis in chapter 3.3. The last question is answered
with the cost and profit analysis in chapter 4.
2.2 Concepts and theory
The thesis is a case study, which focuses on investigating the legislation and
cultural aspects when selling products to Japan and assessing the feasibility of
selling Asebbo’s products on Amazon Japan. The findings should work as a cor-
nerstone for eBrands Global Oy to assessing the feasibility of selling other prod-
ucts in Japan in the future.8 In this thesis the definition of ecommerce is the transactions conducted on the internet, including selling the buy products or service online. The market expan- sion here means selling eBrands Global Oy’s products on Amazon Japan. The feasibility is measured by the gross profit margin in order to find out if it is worth to expand the business to Japan. There are no books or courses that teach how to enter Amazon Japan as a for- eign business in detail. The main sources used in this thesis can be classified in three categories: an academic publication illustrating the relevant aspects of en- tering a new market as an ecommerce operator, an online course focusing on successful selling on Amazon and other sources such as Japanese governmental websites, statistics and reports that assist in gathering legal and cultural infor- mation specifically about the Japanese market. The main literature used to develop the framework for this case study from an academic perspective is called Strategies for e-Business: concepts and cases on value creation and digital business transformation (Tawfik & Martínez-López 2020). The authors are professors of strategy and technology management at the International Institute for Management Development (IMD) in Lausanne, Switzer- land (Tawfik) and business administration at the University of Granada, Spain (Martínez-López). In addition to the theoretical framework and concepts, the pub- lication also contains case studies based on field research to demonstrate how various companies have developed their ecommerce strategies. The publication is relevant for this thesis due to its ability to illustrate the funda- mental concepts of ecommerce strategies when entering new markets through real-world case studies. It also introduces strategies for mobile commerce and social commerce that are essential for marketers to stay competitive in the ecom- merce field. The ecommerce world changes rapidly and the strategies useful five years ago are not necessarily applicable anymore. The authors’ research is still recent enough for the thesis, especially compared to earlier textbooks. According to Tawfik & Martínez-López (2020, 43–44), the first step when making a business decision is strategy analysis which includes external and internal anal- ysis. The external analysis is framed by the PESTEL analysis. PESTEL stands
9 for political, economic, social, technological, environmental and legal environ- ment that have an impact on the business. The internal analysis is framed by the SWOT analysis which measures a company’s ability to utilize its strengths and to prevent its weaknesses from being exposed to external threats. However, this book does not explain strategies of selling on Amazon. Amazon Mastery Course is the other main source used for this case study. The course teaches how to build an Amazon business from scratch in a practical way. In order to make profit on Amazon, the essential elements are analyzing the de- mand and competition in the targeted product niche, calculating manufacturing, shipping and advertising costs, as well as creating attractive visuals and product descriptions with embedded keywords that are favored by Amazon algorithms. (Raehalme & Villand n.d.) However, the Amazon Mastery Course does not introduce the legislation or tax- ation and consumer behavior in detail related to a specific market like Amazon Japan. Therefore, the course works mainly as a general guideline which is ap- plied together with eBrands Global Oy’s self-developed market research methods for product launch and analyzing the feasibility of selling Asebbo’s insulated waxed canvas lunch bag on Amazon Japan. Other sources related to legislation, taxation and consumer behavior in Japan are investigated via governmental websites such as Japan Customs and statistics and reports as such information has to be up-to-date. 2.3 Working methods and data For the PESTEL analysis, Japan Customs website, Amazon Japan website, news related to eco-friendly products from Toyo Keizai Inc, consumer behavior surveys and reports from reliable organizations, such as Statista were reviewed in order to find out the details of the import process and the Japanese online shopping culture.
10 Statista is a company that provides market analysis, consumer behavior infor- mation and media usage based on the data of 700,000 consumers from 55 coun- tries (Statista n.d.). Statista is accessed via Tampere University of Applied Sci- ences student account. The data is obtained by entering keywords in the search bar on the Statista website and examining what kind of statistics are available. For example, this study uses the statistics by searching ecommerce platforms in Japan and ecommerce in Japan on Statista. These statistics are important for marketers when choosing suitable platforms and channels for product launches and advertising. In this thesis, the data pro- vided by Statista serves primarily as a way to gain the big picture and current main trends of ecommerce and consumer behavior in Japan. It is not taken as the absolute truth since any data provided by third-party companies such as Sta- tista cannot be fully verified. However, the information is still useful and accurate enough to be taken into consideration when deciding on, for example, suitable platforms and channels for product launches and advertising. To enhance the reliability and credibility of this study, the E-commerce in Japan: an island of opportunity for Canadian exporters (Asia Pacific Foundation of Can- ada 2018) report is utilized. It provides insights and interpretations about con- sumer behavior, trends and preferences in Japan. The report is built on diverse resources, such as literature, statistics, data analysis and secondary research. The data used in the statistical research in this report was collected by a large research organization as part of its annual research program. The respondents include 1,000 individuals from Canada and 1,003 from Japan. (Asia Pacific Foun- dation of Canada 2018, 6.) Although the report was made for Canadian exporters, eBrands Global Oy can still utilize the information in terms of the consumer behavior and culture in Japan as Finnish and Canadian businesses can be assumed to encounter similar chal- lenges in the Japanese market. The report introduces relevant information con- cerning Japanese consumers. For example, the culture of gift-giving provides op- portunities for sellers whose products could be included in the gift category. In addition, providing a seamless and pleasant customer service is of utmost im- portance in Japan (Asia Pacific Foundation of Canada 2018).
11 Both Tawfik and Martínez-López (2020) and Asia Pacific Foundation of Canada (2018) emphasize the importance of customer service in Japan. This is in line with Amazon’s general core value of providing customer satisfaction. The author will combine the theory and the data related to consumer preferences in Japan to find out what are the important aspects that should be taken care of when selling on Amazon Japan. eBrands Global Oy has two market intelligence software solutions for the niche analysis: Jungle Scout Cobalt and Helium 10 (Jungle Scout 2022; Helium 10 n.d.). These were accessed via eBrands Global Oy’s accounts purchased from the two companies. Both are used daily by eBrands Global Oy’s employees for analyzing Amazon’s US and European markets. The software provides quantitative data for analyzing the demand and competition level, for example, the keyword search volume and the estimated sales on Amazon Japan. These tools are essential because Amazon does not reveal such information directly to sellers. In addition, Amazon Japan is a smaller market and there is not as much data available on it compared to Amazon USA. Therefore, it is better to collect data from two sources to ensure the information is more reliable. Jungle Scout states their accuracy is 84.1 % while Helium 10’s accuracy is 74 %. The results are based on a large amount of test data (Connolly 2022). However, the claims could be pure marketing strategy and cannot be verified. Besides, even an 84.1 % accuracy implies a 15.9 % error margin which means the actual sales could differ by an equivalent ratio. Therefore, sellers should be conservative when for example calculating the order inventory. In order to analyze the demand, it is necessary to analyze the search volume of product keywords (Raehalme & Villand n.d.). When doing the market research for the US market, the monthly keyword search volume of 800 is considered as the minimum. If the search volume is more than that, it means the target niche has sufficient demand which in turn makes it worthwhile to further investigate its feasibility. Considering that exporting to Japan might incur extra costs, such as hiring an IOR (Import of Record) and a local customer service, the niche should
12 have higher demand and sales to support the extra costs. Therefore, the mini- mum monthly keyword search volume is set to 1,000 in this case study and the keyword phrases or keywords that have the search volume under 1,000 per month will not be investigated. The first step is entering insulated lunch bag on Jungle Scout Cobalt’s keyword analysis tool. The tool will extract a large number of different keyword phrases that are related to insulated lunch bag. For example, insulated lunch bag small or insulated lunch bag for men et cetera. The second step is to find several search strings that describe Asebbo’s insulated waxed canvas lunch bag and have decent monthly search volume. For example, if the search volume of the keyword phrase “small insulated lunch bag” is high, it will not be selected because Asebbo’s insulated lunch bag is not small. After suitable keyword phrases are selected, the next phase is to analyze the estimated revenue and competition level. The first step is extracting the estimated sales revenue, estimated sales amount, review score, review amount and sales price in the target niche on Amazon Japan via Helium 10’s niche analysis tool called X-ray. The second step is to rank the data by the sales revenue to find out the top five sellers. The third step is to enter the top five sellers’ data in a table and analyze whether the average sales revenue is high enough and that the av- erage sales price is not too low. For the competitor analysis, the reviews under each company’s product listings were used as the qualitative data. By reading the positive and negative reviews, the author identified customer needs, preferences and competitors’ strengths and weaknesses. Then it was considered whether the strengths and weakness could be considered as opportunities or threats from the external environment from eBrands Global Oy’s point of view – the SWOT analysis. The manufacturing cost were provided by the current manufacturing supplier of Asebbo products. Information about the shipping costs, customs clearance fees and estimated tariffs were provided by eBrands Global Oy’s partner shipping
13 company and other potential agents who assist foreign businesses selling on Am- azon Japan. The selling costs, such as selling account subscription fees, were investigated on the Amazon Japan website. The expenses of using the FBA (Fulfillment by Am- azon) service were determined by entering the product dimensions and category on the FBA fee calculator. In addition to the costs mentioned above, there are also other expenses to be considered. For example, tax management, trademark registration, listing and image localization et cetera. All these fees are calculated based on direct quota- tions from potential service providers. The author requested quotations from mul- tiple service providers for tax management, translating the listings and creating marketing images in order to evaluate the average costs for these services. 2.4 Thesis process In chapter 1, the author introduces the background and the reason for writing this thesis. In chapter 2, the objective, the concepts and theory, the working method and data collection method are demonstrated. Chapter 3 is the strategy analysis which includes the PESTEL analysis, niche and competitor analysis and SWOT analysis, based on the guidance provided by Strategies for e-Business (Tawfik & Martínez-López 2020) and Amazon Mastery Course (Raehalme & Villand n.d.). This chapter provides insights for both the macro-environment and the micro- environment to help eBrands Global Oy to identify its competitive advantages and define the product positioning. Chapter 4 presents the cost and profit calculation in order to define whether it is profitable to enter the Japanese market. Chapter 5 presents the results summary. Chapter 6 is the conclusions and discussion about this study, suggestions for eBrands Global Oy’s future development and further research topics.
14 3 STRATEGY ANALYSIS Strategy analysis can help the decision-maker to identify different strategic op- tions and to understand each option’s implications (Tawfik & Martínez-López 2020, 43). This chapter is divided into three parts: the first part is PESTEL anal- ysis which stands for political, economic, social, technological, environmental and legal analysis. It helps to explain how the macro-environment impacts the busi- ness directly and indirectly. The second part is the niche and competitor analysis which examines the competition level and evaluates whether the target niche is already saturated. The third part is the SWOT analysis which is useful in defining the competitive advantages and positioning the business in the current market situation. 3.1 PESTEL analysis A successful business needs to understand the macro-environment, such as competitors, suppliers, technology, government regulations and current trends. The macro-environment has a bigger impact on an individual business than a business has on the environment. (Tawfik & Martínez-López 2020, 51–52.) This PESTEL analysis is done by analyzing information collected online as online material usually has more up-to-date information compared to print publications. For example, the Japan Customs website is used for reviewing the current import procedures, legislation and tariff rates. Various reports regarding the ecommerce situation in Japan are reviewed to gain insight about the economic and social aspects. News and blogs from Amazon and reliable media outlets in Japan are used for understanding the Japanese consumers’ attitude towards the environ- mental topics and the usage of technologies related to online shopping. Although eBrands Global Oy is established in Finland, this chapter focuses on the business relationship between Japan and China because the import and ex- port regulations and tariff schedules are agreements between the importing and exporting countries. The manufacturing country also affects the perceptions and buying decisions of Japanese consumers. Asebbo’s insulated waxed canvas
15 lunch bags are made in China and will be exported to the target market, Japan. Therefore, it is necessary to examine the trading legislation between China and Japan. 3.1.1 Political The political situation and legislation are important aspects that cannot be ignored. Especially for a cross-border ecommerce operator, understanding the regulations, taxation and tariffs between the exporting and the importing countries is crucial. (Tawfik & Martínez-López 2020, 40.) RCEP (The Regional Comprehensive Economic Partnership) was signed in 2020 by ten members of ASEAN (The Association of Southeast Asian Nations) and China, Japan, South Korea, Australia and New Zealand. The agreement came into force in January 2022. RCEP is the biggest free trade agreement in the Asia- Pacific region which accounts for 30 % of the world’s GDP. In addition, it covers countries that account for 50 % of Japan’s trade value, the most important ones being China and Korea. The agreement includes regulations for service, invest- ment, intellectual property, government procurement, ecommerce and tariff re- duction. According to RCEP, Japan’s tariff elimination rate toward China will be 86 %. (Japan External Trade Organization 2022, 2, 13.) According to Japan's Tariff Schedule (Japan Customs 2022), Asebbo’s insulated waxed canvas lunch bag’s is classified as a handbag made of leather and its HS (Harmonized System) code is 420222.200. RCEP can reduce the import costs but it does not directly mean significant increase in profits in the short-term. In 2022, the tariff schedule of exporting Asebbo’s products to Japan is 7.6 %, which means the tariff to be paid is the product sales price times 7.6 %. The tariff sched- ule will be reduced 3 % to 5 % each year and finally be free after 2042. (Ministry of Foreign Affairs of Japan 2021, 578; appendix 1.)
16 3.1.2 Economic In this chapter, the general ecommerce situation, such as the ecommerce market size and top selling categories in Japan are introduced. There are 100 million ecommerce users in Japan – in 2021 the ecommerce pen- etration rate was 80 %. The net sales on Amazon Japan in 2020 were 11,114 million euros. The biggest category in 2020 was electronics and media with a 33.5 % share of total net sales of the top 100 online stores. (Eden et al. 2021b, 5, 36.) The top five online stores accounted for 55 % of net sales of the top 100 online stores in Japan. The net sales of Amazon Japan in electronics and media, toys, hobbies and DIY, furniture and appliances, food and personal care exceed other online selling platforms but do not have the fastest net sales growth rate. (Eden et al. 2021b, 38–39). In other words, Amazon Japan currently holds a significant market share but it naturally does not guarantee that it will not be later surpassed by other players. The bags and accessories category is in the top ten most purchased categories for online shopping in Japan (Eden et al. 2021b, 15). However, on Amazon Japan most of the insulated lunch bags are placed in the kitchen category (see, Amazon Japan 2021b). Therefore, the popularity of the bag category does not yet provide proof that also insulated lunch bags are in high demand. The demand analysis for the target niche is demonstrated in chapter 3.2.1. 3.1.3 Social In this chapter, the consumer behaviors and shopping culture in Japan are intro- duced because it is important for foreign sellers to learn and understand the pref- erences and taboos in the target country. According to Suzuki (2012), there are certain types of people who tend to make online purchases often: for example, people with higher income but little free time
17 and people with a wide circle of acquaintances. In addition, the more categories the person purchased from, the more often he or she buys. This indicates that when advertising online, if the marketer targets these types of customers, the conversion rate is likely to be higher. Local presence Japanese consumers prefer to purchase local products when shopping online. The main reasons are the availability, product condition, quality, variety and brand reputation. When operating an online business in Japan, it is essential to provide good quality products and customer service in accordance with the needs of the local culture. Marketers should present the brand name, features and price clearly. Also having a loyalty program which provides large discounts on Japanese holi- days is highly valued. One note is that Japanese consumers prefer a marketing approach that is not too aggressive. (Asia Pacific Foundation of Canada 2018, 4.) According to Kunst (2019), to Japanese consumers the country that have the best reputation in terms of manufacturing are Germany, Italy and Sweden, whereas China has the worst reputation. Even if the product is manufactured in the coun- tries the Japanese consumers view positively, it is still important for the brand to have a local presence, such as interacting with the customers on online forums or social media (Asia Pacific Foundation of Canada 2018, 31). Japanese people like exotic things, but the products have to be localized. This phenomenon can be observed from various aspects. For example, one of the writing systems in Japanese language, katakana, is used for foreign words. A lot of food products originating from abroad have been localized to fit the Japanese consumers’ preferences. For instance, ramen was originally from China and tem- pura from Portugal. Therefore, when considering exports to Japan, it is worth- while to investigate the Japanese consumers’ preferences first and to localize the products according to them. Conducting research before purchasing 59 % of online consumers conduct research before purchasing and 47 % think reviews posted by other consumers are useful (Eden et al. 2021b, 20). This indi- cates that marketers need to make sure that the product information is abundant
18 and clearly displayed on smaller devices such as smartphones and tablets. Hav- ing correct, clear and abundant product information can prevent misunderstand- ing as consumers cannot see the physical product which can also reduce nega- tive reviews caused by the problems resulting from misunderstandings. It is im- portant to avoid getting negative reviews because close to half of the consumers think reviews are useful for buying decision. Culture of gift-giving Apart from the usual dates when people give gifts, such as Valentine’s Day or New Year’s Day, there are two other occasions or categories of gift-giving: omi- yage and temiyage. Omiyage is a souvenir that people buy when traveling and is given to friends, family members and colleagues. Temiyage is given to the host when visiting someone’s home or company. Therefore, providing the gift wrap- ping is also an important aspect when selling products in Japan. The budget for omiyage and temiyage is about 7 to 36 euros. On the other hand, there are some taboos when giving gifts: avoid anything related to number four (such as product bundles of four units) and red or black envelopes with cards as they are associ- ated with death. (Asia Pacific Foundation of Canada 2018, 7.) Customer service in Japanese Japanese consumers have high expectations towards customer service which also includes having a website, the product description, warning labels, adver- tisements and customer support in Japanese language when they need help. (Asia Pacific Foundation of Canada 2018, 10.) Upon reading the reviews on Amazon’s shopping mobile application on Apple App Store, it was observed that Amazon provides Japanese customer service for the customers of FBA sellers but the customer service staff are not necessarily native Japanese speakers which leads to complaints from the Japanese custom- ers. Therefore, from brand reputation’s point of view, it is important that the seller is capable of providing customer service and a website in Japanese at native- level proficiency. If the customers are disappointed in the service, they might leave a negative review, and about half of the consumers read reviews before purchasing. Failing to provide good customer service might result to losing exist- ing and potential customers.
19 3.1.4 Technological In this chapter, the functionality of Amazon’s shopping application for mobile phone users is investigated as most sellers check their webstore daily and thus are familiar with the functionality of Amazon’s shopping website. With Amazon’s application, consumers can search for products by taking a picture of the product or saying the keywords aloud. These functions help them find the correct product page more easily. Other functions are: watchlist which sends a reminder right before a sale starts so the customer will not miss the discount deals, virtual dash button which allows the customer to order consumable products like detergent and toilet paper with one click, and payment method registration which allows one-click purchases after the registration. The application appears to be able to make the shopping experience easier, more convenient and customized. However, it is worth investigating in more detail how the Japanese customers view the Amazon shopping application. The reviews for Amazon shopping application on Google Play for Android systems and Apple App store for IOS system in the Japanese market were used for acquiring a greater understanding of the customers’ opinions about the Amazon shopping application. On App Store, the Amazon shopping application has 572,000 reviews with a 4.6 (out of 5) average score (Apple App Store 2022). On Google Play, there are 2,755,387 reviews and the average score is 4.4 (Google Play 2022). However, it should be noted that it is practically impossible to verify the authenticity and the contents of each review – it is common knowledge that many online reviews are fake. Even the high number of reviews does not yet serve as proof of reliability since it is possible to automate the fake review generation. Also, on the Apple App Store it is only possible to view the contents of the ten most recent reviews which cannot represent all of the users’ opinions. Nevertheless, a glance at the review contents concerning Amazon’s shopping mobile application on Google Play, it reveals that the application appears to have some bugs. For example, the search engine is mentioned to give results that are
20 completely unrelated to what the user searched for, another user was unable to scroll down the review page and watchlist page, or the app runs slowly et cetera. In addition, these bugs were mentioned in both older and more recent reviews. This indicates that these bugs have existed for a long time and have not been fixed. 3.1.5 Environmental In this chapter, the consumer awareness toward environmental topics in Japan are discussed in order to gain insights of the potential market for Asebbo. Asebbo’s insulated waxed canvas lunch bag is made of reusable and biodegrada- ble material and thus it can be classified as an eco-friendly product. The eco-attitudes and actions of 1,504 Japanese aged 18–69 were recently sur- veyed using a questionnaire. 80 % of the respondents expressed their interest and concern towards environmental issues. The biggest issues were food waste, plastic use and sustainability. Actions the respondents mentioned taking regularly were bringing their own shopping bags (75.7 % of the respondents), bottles and home-made lunches in a box (32.3 %). However, gender and age seemed to clearly affect the ratio of eco-friendly actions: for example, only around 20 % of the male respondents had the habit of bringing lunch boxes from home with them, while in females aged 30–49 the percentage was more than double, 42 %, and even higher with women aged 18–29, where the ration was almost 50 %. (CCC Marketing Group 2020.) It is also worth noting that according to the survey, 28.5 % of men aged 10–29 did not take any of the actions mentioned (CCC Marketing Group 2020). Rather than actively protecting the environment, majority of the young people purchase eco-friendly products because they are fashionable and to appear as ecologically aware in the eyes of their peers and on the social media. In countries where eco- awareness is highly valued, young people tend to purchase eco-friendly products even when they are more expensive. However, the Japanese youth does not seem willing to pay extra for eco-friendliness. (Hirata 2020.) This article did not explain why Japanese consumers are not used to buying eco-friendly products if
21 they are more expensive. Based on the author’s observations, there could be several reasons. First, typically East Asian education gives relatively little consid- eration to environmental issues (the author is Taiwanese and has studied in Ja- pan as well). Secondly, many stores continue to provide free plastic bags for the customers. Thirdly, exquisite packages seem to be commonly used and valued for most types of products. These issues reflect the slow change in the environ- mental awareness of both the business and the consumers. Asebbo’s insulated waxed canvas lunch bag’s target group are people who bring a home-made lunch with them daily. In addition, it could be advertised for people who usually buy a take-out dinner on their way back home after work. When ad- vertising, it is important to choose the right customer segment: in this case, the main target group would be females aged 18–49. In chapter 3.2, the competitors’ product price and product attributes are analyzed to investigate whether the Jap- anese consumers would be interested in buying Asebbo’s insulated waxed can- vas lunch bag. 3.1.6 Legal In this chapter the import procedures, tariffs, consumption tax, regulated product categories and regulations for selling consumer goods such as Household Goods Quality Labelling Act, Unfair Competition Prevention Act and Product Liability Act are considered. Import procedures Import procedures in Japan include submitting the import declaration and then obtaining the import permit after the goods have been examined by Japan Cus- toms and the custom duties and excise duties have been paid (Japan Customs n.d.). The WCO (World Customs Organization) has 180 customs administrations glob- ally, and it adopted the international framework called Safe Framework in 2005. The Safe Framework includes the AEO (Authorized Economic Operator) program. The importers, customs brokers, logistics operators and warehouse operators
22 that are enrolled in the AEO program and comply with the supply chain security standards of WCO’s Safe Framework are entitled to benefits such as simplified customs procedures. (Customs & Tariff, Bureau…2018, 1, 4.) The customs clearance process will be shorter and easier for all the importers, customs brokers, logistics operators or warehouse operators that are enrolled in the AEO program. The customs clearance and obtaining the import permit can be done in any customs office even before the goods arrive at the customs. The cargo can be released before the duty payment. (Customs & Tariff, Bu- reau…2018, 5.) In short, if eBrands Global Oy imports products to Japan with an importer, a customs broker, a logistics operator or a warehouse operator that is enrolled in the AEO program, the lead time can be reduced enormously. The requirement for a non-resident FBA seller is that the seller has to designate an IOR or ACP (Attorney for Customs Procedure) in order to import products to Japan and then send the products to Amazon’s FBA warehouses in Japan. Am- azon will not act as the importer or customs broker. (Amazon Global Selling 2020, 21.) eBrands Global Oy has a partnership with one shipping company who handles export from China and import to the United States and Europe and is able to act as eBrands Global Oy’s IOR to import Asebbo insulated waxed canvas lunch bags to Japan. However, this shipping company is not enrolled in the AEO pro- gram and thus cannot reduce the lead time by utilizing the AEO program. The costs of designating and IOR will be discussed in chapter 4. As mentioned, WCO has 180 customs administrations internationally. The AEO program which started in 2005 is also available in the USA and European Union. In order to enroll to the AEO program, the company has to meet the requirements of the Safe Framework adopted by WCO. These include an appropriate compli- ance record, being able to use the e-system for customs procedures and conduct related operations and an establishment of compliance program. (Customs & Tariff, Bureau…2018, 1, 14, 20.)
23 Although there are a lot of requirements for enrolling in the AEO program and this study will not investigate the details of enrolling to the AEO program, it is still worthwhile for eBrands Global Oy’s logistics team to investigate whether it is pos- sible to enroll in the program in the EU or if the company would at least be able to work with shipping companies enrolled in the program. If eBrands Global Oy can enroll to the AEO program or build a partnership with an AEO importer, a customs broker, a logistics operator or a warehouse operator, the lead time can be reduced significantly and the risk of running out of stock will be smaller. Tariffs and consumption tax Japan has a different taxation system from the EU and the US. The taxable sales include the sales effectuated in Japan, lease of assets or services for business purposes or sales effectuated for a compensation (National Tax Agency n.d.). Therefore, the product sales and import service costs are taxable sales in Japan. Sellers need to consider these costs while calculating the profits. The standard consumption tax in Japan is 10 % and it is collected in advance when importing the products at the customs. Foreign businesses that do not or will not have a domicile need to designate a tax agent to manage the tax pay- ments on behalf of the company. After designating a tax agent, the Notification of Tax Agent document should be sent to the District of Director of the Tax Office with jurisdiction over the Place for Tax Payment. (National Tax Agency n.d.) However, under the Japanese consumption tax law, once the taxable sales in Japan exceed 10,000,000 Japanese yen, (about 76,400 euros using the March 2022 average exchange rate) in the base period which is two years before the current period, the seller will become a consumption taxpayer (Hiura 2022). Therefore, in the first two years after launching, eBrands Global Oy does not need to designate a tax agent. For future reference, the cost of designating a tax agent to manage the tax returns in Japan will still be discussed in chapter 4. Regulated product categories Regulated products can be sold only by a Japanese legal entity, and not by a non-resident business entity. Regulated products include the products that have direct contact with food and human skin, toys for children under six years old,
24
medical devices, massagers, beauty equipment, toothbrushes, drugs and cos-
metics. For these, the seller needs to obtain government approval and use a Jap-
anese IOR to import the goods. Although importing non-regulated products to
Japan does not require a government approval, still required are an IOR and a
Foreign Online Seller Report which validates the importer’s company, the seller
account and the selling price on Amazon Japan. (Covue 2021.)
Asebbo insulated waxed canvas lunch bags are not a regulated product so
eBrands Global Oy’s partner shipping company can be used as the IOR. In the
future, if eBrands Global Oy decides to sell regulated products, cooperating with
a local agent is necessary.
Household Goods Quality Labelling Act
For textile and plastic goods, electronic appliances, apparatus and products in
the miscellaneous category, the labelling needs to follow the rules of Consumer
Affairs Agency’s Household Goods Quality Labelling Act. (Consumer Affairs
Agency & …2017, 1–2.) Asebbo insulated waxed canvas lunch bag falls in the
miscellaneous category, thus the product needs to have the following label con-
tents: the components, functions, usage and precautious for handling. The label
contents need to be easy to read and understand, therefore it needs to be written
in Japanese. (Manufactured Imports and Investment…2016, 4.)
Regarding the labelling timing, there are four options:
• Making the labels in Japan first and sending to the manufacturing country to
be attached to the products. Then the products are imported to Japan.
• Based on Japan’s labelling requirements, making the labels in the manufac-
turing country and attaching the labels to the products. Then importing the
products to Japan.
• The manufacturer makes the labels that meet multiple countries’ requirements
and attaches all the labels to the products.
• Attachment of the labels to the products by the importer or seller after import-
ing.25 However, Japan Customs might check the product label during the customs clearance. Therefore, it is advised to attach the labels to the products before im- porting. (Manufactured Imports and Investment…2016, 8.) Regarding who is the labeler, the law has different definitions for different product categories. For miscellaneous products, the labeler will be the business that has their office in Japan: it can be the manufacturer, the seller or a labelling contractor commissioned by the manufacturer or the seller. (Manufactured Imports and In- vestment…2016, 8.) In this case study, since eBrands Global Oy does not have an office in Japan, it is necessary to assign a local labelling contractor or a local importer to act as the labeler. Products made of leather are required to have a label that specifies the material, the method of taking care of the product, precautions for handling, labeler’s name and the contact phone number or address (Manufactured Imports and Invest- ment…2016, 48). If leather covers over 60 % of the product surface, the label has to indicate the leather type, such as cowhide (Consumer Affairs of Agency 2021). Asebbo insulated waxed canvas lunch bag’s cowhide covers only six per cent of the product surface, and the rest of the material is synthetic leather. Therefore, the label needs to mention synthetic leather as the material. In 2016 JSA (Japanese Standards Association) published the Care Labelling Standards, since then all the textile products need to have the internationally rec- ognized product care symbols which can reduce the risk of misunderstanding the symbols on products that are manufactured in other countries. The symbols indi- cate whether the product can be machine-washed or washed in temperatures over 40 degrees Celsius or if the product can be bleached et cetera. (Manufac- tured Imports and Investment…2016, 50; appendix 2.) Unfair Competition Prevention Act The purpose of Unfair Competition Prevention Act is to protect consumers from misleading representations related to the product and ensure fair competition. Misleading representation of the country of origin is common. The representation should not include information that might mislead people’s perception of the coun- try of origin by using for example other countries’ city names, flags, businesses,
26 designers or trademarks. If the country of origin is not Japan, the representation should not only be written in Japanese. (Manufactured Imports and Invest- ment…2016, 15–16.) According to the two acts introduced above, Asebbo insulated waxed canvas lunch bag needs to have the label written in Japanese with the following contents: the phrase Made in China, the handling symbols, information about the neces- sary precautions, materials, labeler’s name and the contact phone number or ad- dress. Product Liability Act Under the Product Liability Law in Japan the manufacturer is responsible for the product liability. The person that has labeled the products with its name is also responsible for the product liability, so it is possible that the distributor or importer will be subject to the product liability. (Consumer Affairs of Agency 2022.) eBrands Global Oy has the product liability insurance that covers eBrands Global Oy’s product liability internationally. 3.1.7 Summary of the PESTEL analysis Regarding the economic aspect, the ecommerce situation in Japan seems to be attractive in terms of the market size but sellers still have to conduct a deep mar- ket research for the target niche and compare different selling channels before entering the market. Understanding the social aspects, including the consumers’ preferences and taboos is also necessary but the most important things are still the basics: high quality products and providing good customer service in Japa- nese language. Regarding consumers’ attitude towards environmental topics, the majority are aware of some environmental issues such as food waste, problems of plastic usage and sustainability. However, some Japanese consumers might not purchase an eco-friendly product if it is more expensive. There are a lot of legal issues to be researched before exporting products to Ja- pan. For most products, the labelling needs to follow the regulations of Consumer Affairs Agency’s Household Goods Quality Labelling Act. Since eBrands Global
27 Oy does not have an office in Japan, it is necessary to assign a local labelling contractor or a local importer to act as the labeler when selling Asebbo insulated waxed canvas lunch bag. Another challenge that eBrands Global Oy will face when selling other products is that in order to import regulated products such as food containers, beauty equipment and toys for children under six years old, the company needs to cooperate with a Japanese agent. 3.2 Niche and competitor analysis When determining whether to enter a market, there are two questions to be an- swered. 1. Is the market segment attractive? This can be measured by its growth poten- tial, current profitability and competition. 2. Can we become the winner in this market segment? This can be evaluated by analyzing the company’s ability and resources to provide value to the cus- tomers. (Tawfik & Martínez-López 2020, 90.) To answer the questions, the first step is to determine whether the product niche has a high enough demand and a low enough competition. The second step is to check for registered patents identical to our product, and the third phase is the profitability calculation. (Raehalme & Villand n.d.) 3.2.1 Segmenting the market and demand analysis When segmenting the market, it is important to define the market within a mod- erate scope. If the market is defined too broad, it will be difficult to focus on the most important target. If it is defined too narrow, some critical competition might be overlooked. (Tawfik & Martínez-López 2020, 83.) In this case study, the market segment is the insulated lunch bag niche on Ama- zon Japan. Jungle Scout Cobalt and Helium 10 software tools are used for ex- tracting the data that will be used for analyzing the demand and competition level.
28
For measuring the demand, the number of keyword phrases’ monthly search vol-
ume and average monthly revenue are the key figures to look at (Raehalme &
Villand n.d.). Both Jungle Scout Cobalt and Helium 10 have tools for extracting
the keyword phrases’ search volumes. However, Helium 10 only gives an esti-
mate and not the exact search volume from customers. Therefore, Jungle Scout
Cobalt is used for the keyword analysis in this study.
The Amazon Mastery Course (Raehalme & Villand n.d.) did not mention how
much the monthly search volume should be to indicate a good level of demand.
Naturally, the market size and seasonality have a big impact on the number of
searches. In this case study, the hypothesis is that if a keyword phrase’s monthly
search volume is over 1,000, then it indicates that the demand exists. If the de-
mand exists, also the monthly revenue will be investigated. In this study, the key-
word phrases to be investigated in detail are insulated cold bag, lunch bag, insu-
lated cold lunch bag, insulated cold eco bag and tote-type lunch bag as their
search volumes are over 1,000 (Table 1).
TABLE 1. Keyword phrase search volume analysis of the insulated lunch bag
niche on Amazon Japan on 31st January 2021 (Jungle Scout Cobalt 2021)
Keyword phrase Translation 30-day
in Japanese in English Search volume
保冷バッグ insulated cold bag 12,646
ランチバッグ lunch bag 8,249
保冷バッグ お弁当 insulated cold lunch bag 1,544
エコバッグ 保冷 insulated cold eco bag 1,496
ランチトート tote-type lunch bag 1,068
Although the search string insulated cold bag has higher demand than lunch bag,
based on the Amazon Japan website search results (see, Amazon Japan 2021b),
it was noticed that the products in the insulated cold bag niche are larger insulated
bags suitable for food delivery workers or grocery shopping. Also, the products inYou can also read
