#79 Foreign Cosmetics in Japan

A while ago, a student of mine (yes, I’m also a professor at a business school), has written an interesting term paper. The general topic was – of course – failure in international business, and the student who was working for a US-based mid-sized cosmetics company decided to focus on cosmetics in Japan. The outcome was not surprising, but still highly interesting. Highlighting three foreign companies’ (Avon, Mary Kay, Boots) failed attempts at entry into the Japanese market, there seemed to be recurring patterns. Avon’s Japanese adventure started as early as 1969. For a number of years, Avon struggled as it failed to understand the Japanese consumers – the product portfolio was too Western, the low price strategy didn’t appeal to the market, and Avon’s distribution strategy that relied on the ‘Avon Lady’ was a complete cultural mismatch. Avon eventually worked out all the kinks, but in 2010 decided to exit the Japanese market by selling its business to a TPG, a private equity firm, as there were questions about future competitiveness. In one interview, the head of Avon’s Japanese operations, Terrence Moorehead, also characterized decision-making behavior in Japan as rather cumbersome. Mary Kay entered Japan in 1994 only to pull out again seven years later. Products had to be reformulated due to legal and cultural restrictions, but more importantly for Mary Kay, the entire company’s mission didn’t align well with the Japanese environment. Boots Cosmetics is of course a bit different from Avon and Mary Kay as it is a chain of drugstores and not just a cosmetics manufacturer. Having said that, 40 % of their revenue comes from the sale of cosmetics, mostly their own brands. In all fairness, Boots tried to be intelligent about bridging the huge differences that set Japan apart from other markets where they had been successful before. However, their choice of a joint venture partner – Mitsubishi – may have been less than ideal. Mitsubishi had access to capital and was well respected in Japan, but didn’t have experience in the drug store retail or in the cosmetics business. Mitsubishi’s might may also have lured Boot into a type of entry that was ‘too much, too fast’. Japan is often considered one of the most advanced markets in Japan – a fact that often lets foreign companies underestimate the difficulties associated with it.

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