The Distribution Industry in the Network Age

No.51
May 1999
Fujitsu Research Institute
Japan Center for Economic Research

1. Within the long-term stagnation of post-war Japan's economy, structural reforms of various aspects of the economy have been progressing, including reforms of Japan's business system, pension, social welfare system, and employment system. However, at the same time, movements for the reform of Japanese-style business practices are beginning to emerge, even from within the distribution industry.
2. The impetus for such reforms came from the store-development strategies of American retail companies such as Toy's 'R' Us and Office Max. These companies used low prices as a price-destroying weapon, and marked the advent of a new type of distribution enterprise. These new revolutionary distribution enterprises constructed new distribution routes on the one hand, while at the same time purchased directly from makers, rather than rely on warehouses. In Japan's toy and office supply industries, the American business formula was accepted quickly and without protest.
3. Japanese distribution companies that are developing distribution efficiency on par with U.S. companies are not uncommon; some of these companies are chain stores and discount centers. Without exception, these companies are using IT to strengthen their price competitiveness.
4. Since 1997, e-commerce conducted over the Internet has begun to expand rapidly. Some companies are already nurturing e-mail operations that boast profit margins. Within the next five years, these businesses are expected to grow by as much fifty times and reach a scale of three trillion yen, thereby greatly influencing Japan's distribution system.
5. More and more distribution companies are researching QCR and SCM distribution systems that make use of IT. However, it is clear that some aspects of Japanese-style business practices are preventing these systems from turning a profit.

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