Hong Kong exporters of consumer goods now have better chance to break into the Japan market due to recent changes in the country's distribution system, says a research report released by the Trade Development Council (TDC) today (January 21).

Despite its lacklustre economy in recent years, Japan is still the world's second largest economy and its import demands remain enormous. In the first 11 months in 2002, Hong Kong exported a total of HK$ 77 billion worth goods to Japan, the third largest export market of Hong Kong.

TDC's Assistant Chief Economist Dickson Ho said: "The transformation in Japan's distribution and retails landscape spells opportunities for Hong Kong exporters. Hong Kong exporters should keep abreast with the diversity of distribution channels available in Japan and sell to the right parties."

According to the report, consumers in Japan now turn to discount stores, supermarkets, 100-yen stores, general merchandise stores (GMSs) and specialty stores for 'value-for-money' items.

To better serve budget-conscious consumers, many Japanese companies have stepped up their efforts to source consumer goods from Asian suppliers direct, especially those from Hong Kong and Southern China.

Among new kinds of retailers that prefer to source from Asian suppliers, Hong Kong exporters should pay special attention to specialty stores, specialty stores of private apparel (SPAs) and GMSs.

Specialty stores such as consumer electronics chain stores have performed well recently, thanks to their introduction of lines of quality products at competitive prices.

Similarly, 100-yen stores are very popular as they succeed in targeting budget-conscious consumers.

SPAs run and franchise retail outlets for apparel. Although they are new faces in Japan's distribution system, they are able to develop products catering to consumers' taste by closely gauging consumer preferences and identifying items that sell well.

Traditional distribution channels such as Sogo Shosha (general trading companies), department stores and wholesalers are facing challenges from new competitors and adjusting their strategy.

Sogo Shosha used to be the most important players in Japan's distribution system. In the face of growing direct imports by retailers, Sogo Shosha have become more active in forward and/or backward integration. Some have strengthened their retail business, while others have endeavoured to operate their manufacturing facilities.

Japan's wholesale industry is being eroded by retailers' trade disintegration attempts. Wholesaler are increasing their goods imported from low-cost production areas in Asia, along with strengthening their logistics capability and setting up own distribution centres.

Department stores are remodelling and refurbishing their stores, offering more premium services/products. More department stores are developing private labels.

Mr. Ho said: "Traditional distributors in Japan are strengthening their involvement in manufacturing in Southern China and sourcing from Asia. This bodes well for Hong Kong OEM and ODM manufactures, as well as traders."

The report suggests Hong Kong exporters of different products to focus on specialised distributors. Detailed strategies are as follows:

Clothing: three kinds of exports opportunities are available - OEM/ODM arrangements with SPAs; selling low-priced and non-branded goods to GMSs, discount stores and individual shops (Shotengai); and promoting own brands or establishing own retail shops.

Consumer electronics: In light of their popularity, household electrical appliance stores (Denkiten) are the most preferred retailer channels.

Household goods and gifts: exporters can target 100-yen stores, discount and zakka stores, as well as cash-and-carry wholesalers who often distribute products to these stores.

Toys: work with toys wholesalers and manufacturers on OEM/ODM basis.

The report also recommends Hong Kong companies to co-operate with major reputable e-commerce and mail-order companies in Japan.

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