Question

Do some independent research and discuss why UNIQLO has been able to emerge as a successful global firm. In particular, discuss: a. how it responded to changes in Japanese consumer preferences during the post- crash period? b. how it utilised globalisation of production in response to the high exchange rate and high Japanese wages? c. why it has been much more successful in Asia but not so successful so far in the West? d. what can it do to maintain profits if Chinese wages increase substantially?

Answer 1

a. how it responded to changes in Japanese consumer preferences during the postcrash period?

The key point in this section is the link between Japanese consumer behaviour and the postbubble economic conditions in Japan. During the post-bubble period, because of the financial difficulties experienced by many households due to the large debts they had incurred during the bubble period, there was a shift in consumer behaviour. While people were still very brand conscious, they wanted to purchase quality goods (they retained their quality consciousness) more cheaply. UNIQLO saw this as a market opportunity. At first, most Japanese did not want to be seen wearing cheaper clothes – ‘loss of face’- though they wanted to buy cheaper. So UNIQLO initially focused on underwear where the brand was not on public display.

b. how it utilised globalisation of production in response to the high exchange rate and high Japanese wages?

The point here is the link between the opening of China and the opportunities for a company to use product fragmentation and splitting of the value chain efficiently to use a low wage country to undertake the labour-intensive segments of a production process. The problem for the company was how to deliver high-quality clothes cheaply – because the final manufacture of clothes is very labour intensive and Japanese wages were high. They solved their cost problems by shifting the labour intensive part of the operations – actual sewing/production of the garments - to China and imported the finished products back, initially, to sell in Japan. In effect, they were ‘importing labour services’ from China; the high exchange rate and low Chinese wages both made this an attractive strategy. So China became an export platform for the company.

c. why it has been much more successful in Asia but not so successful so far in the West?

This is a subject for interesting research. Some reasons are given in the literature that are that (a) UNIQLO was slower in getting to target the non-underwear market and its brand name is associated with ‘cheap’ clothes, not with fashionable clothes (so, what made it succeed at first has also become a bit of a problem later when trying to widen its product range and customer appeal, and (b) it is more attuned to the Asian (particularly North Asian) tastes in clothes and ways of marketing. In contrast, for example, SARA – from Spain – which is a similar success story from Europe, has had much greater success in Western markets, including in the USA, where UNIQLO, despite much effort has not had similar success. SARA, which did not have to start with the cheap underwear focus, is supposedly much more attuned to the needs of the competitively priced but fashion-conscious customers and to Western tastes and fashions and has developed a system where it monitors and responds extremely quickly to changes in the market in fashion and tastes.

d. what can it do to maintain profits if Chinese wages increase substantially?

For example - it may need to consider shifting the most labour intensive operations in the production process to lower-cost locations (e.g. Bangladesh or Myanmar) and shifting to more capital intensive methods (though this is less feasible because of the nature of clothing manufacture makes it intrinsically very labour intensive). But the large market in China is an incentive to keep producing at least some of the clothes there because UNIQLO is now targeting not only the underwear market, so it pays to produce in proximity to the markets and consumers to get market information and respond quickly to shifts in tastes/fashions.