Today in the IT and Markets class we are doing a case on SEJ - 7Eleven Japan.
A very interesting company. Amazing to level of idealistic in many ways! 7Eleven is a convenience store chain that started in Dallas, USA sometime in the early 1900s. In the 1970s the chain expanded into Japan under a partnership with a local Japanese supermarket chain (The biggest at that point), forming 7Eleven Japan aka SEJ. Over the years the trademark Japanese efficiency transformed this company into one of the most innovative trend setting convenience store chain in the world! Eventually when 7Eleven USA was close to bankruptcy, SEJ bailed out the parent company and soon transferred their expertise of logistics, store handling, distribution and planning to the US chain to help them recuperate quickly. However, there is an element of discipline and dedication in Japan, among the Japanese people, that I dont think can be ever replicated by any other populace. 7Eleven USA thus I dont think will ever over take its Japanese offshoot.
I have read so many articles on the retail industry in India. Only 2% of Indian retail is organized, the rest of the 98% is constituted by corner-grocers, mom n pop shops, 'dabba angadi's - a whole array of unorganized retailers. Thus it is being fast projected to the rest of the world that India is the next big retail destination for the Walmarts, Targets, all marts, of the world. This to me first was a scary thought. Maybe the socialist in me (if it does exist). Maybe it was just a protectionist feeling towards my local grocers with whom I have shopped for years. Whatever it was, my first reaction was..No! Walmart and teh likes should nto be allowed to enter the Indian market. They will destroy the local grocers. Put them out of business. What should these people then do for a livelihood. They will be forced to lead a life notches below where they are now. All kinds of these thoughts.
After the initial outburst, my mind seemed to settle down and then call the Capitalist in me if you want, or the capitalists may say - the rationalism in me :) - seemed to kick in. How much would a protectionist attitude help progress, development and growth? Even when bring up kids, parents are adviced to keep an eye on their children, but not be over protective. Let them fall then only they learn to get up and be careful the next time. Isnt this in a way what capitalism preaches. I do not know for sure, as I havent really read much on these theories. But what I do know is that capitalism drives the market towards efficiency. I am reminded of Darvin's theory - "Survival of the Fittest". Why should'nt the same theory apply to economics of a country or a region. Infact many economic theories, ones that have won Nobel prizes over the years seem to be an economic extension of Darwin's throry of evolution. Just like nature, financial and economic markets have an inherent tendency to balance out and settle down. Thye do through peaks and crashes but eventually settle down. Infact everything in this world works towards an equilibrium. Do we ever achieve it, I dont know. Maybe the day we do will be the last day of the universe's existance.
Another instance that comes to my mind now is the 'Brain Drain'. Even until about 5 years back this used to be one of the hottest debate topics in schools and colleges. Civil Service exam essays were based around this topic. Media made a huge hype on the amount spent over each IITian who was leaving India. But 30 to 40 years into that trend all of a sudden the market has evolved in such a way as to cause 'Reverse Brain Drain'. Emigration levels are still higher than Immigration, but nevertheless the trends have set in. If not for external uncontrollable forces such as Govt. policies, regulations, terrorism, et all, my guess would be that the world would soon become a seamless market with hubs of activities being created wherever they are most efficient at that point in time. A fluid, ever moving and changing - a flux.
Coming back to where I started. After all these thoughts went through my mind, I came to the conclusion that my initial stance was not right. It was not in the line of natural evolution. The fittest will survive, and that is how nature works. And it is amazing how the ways of nature apply even to man-made things such as financial and economic markets!!
Well..what do I say..Nature Rocks!! :)
A very interesting company. Amazing to level of idealistic in many ways! 7Eleven is a convenience store chain that started in Dallas, USA sometime in the early 1900s. In the 1970s the chain expanded into Japan under a partnership with a local Japanese supermarket chain (The biggest at that point), forming 7Eleven Japan aka SEJ. Over the years the trademark Japanese efficiency transformed this company into one of the most innovative trend setting convenience store chain in the world! Eventually when 7Eleven USA was close to bankruptcy, SEJ bailed out the parent company and soon transferred their expertise of logistics, store handling, distribution and planning to the US chain to help them recuperate quickly. However, there is an element of discipline and dedication in Japan, among the Japanese people, that I dont think can be ever replicated by any other populace. 7Eleven USA thus I dont think will ever over take its Japanese offshoot.
I have read so many articles on the retail industry in India. Only 2% of Indian retail is organized, the rest of the 98% is constituted by corner-grocers, mom n pop shops, 'dabba angadi's - a whole array of unorganized retailers. Thus it is being fast projected to the rest of the world that India is the next big retail destination for the Walmarts, Targets, all marts, of the world. This to me first was a scary thought. Maybe the socialist in me (if it does exist). Maybe it was just a protectionist feeling towards my local grocers with whom I have shopped for years. Whatever it was, my first reaction was..No! Walmart and teh likes should nto be allowed to enter the Indian market. They will destroy the local grocers. Put them out of business. What should these people then do for a livelihood. They will be forced to lead a life notches below where they are now. All kinds of these thoughts.
After the initial outburst, my mind seemed to settle down and then call the Capitalist in me if you want, or the capitalists may say - the rationalism in me :) - seemed to kick in. How much would a protectionist attitude help progress, development and growth? Even when bring up kids, parents are adviced to keep an eye on their children, but not be over protective. Let them fall then only they learn to get up and be careful the next time. Isnt this in a way what capitalism preaches. I do not know for sure, as I havent really read much on these theories. But what I do know is that capitalism drives the market towards efficiency. I am reminded of Darvin's theory - "Survival of the Fittest". Why should'nt the same theory apply to economics of a country or a region. Infact many economic theories, ones that have won Nobel prizes over the years seem to be an economic extension of Darwin's throry of evolution. Just like nature, financial and economic markets have an inherent tendency to balance out and settle down. Thye do through peaks and crashes but eventually settle down. Infact everything in this world works towards an equilibrium. Do we ever achieve it, I dont know. Maybe the day we do will be the last day of the universe's existance.
Another instance that comes to my mind now is the 'Brain Drain'. Even until about 5 years back this used to be one of the hottest debate topics in schools and colleges. Civil Service exam essays were based around this topic. Media made a huge hype on the amount spent over each IITian who was leaving India. But 30 to 40 years into that trend all of a sudden the market has evolved in such a way as to cause 'Reverse Brain Drain'. Emigration levels are still higher than Immigration, but nevertheless the trends have set in. If not for external uncontrollable forces such as Govt. policies, regulations, terrorism, et all, my guess would be that the world would soon become a seamless market with hubs of activities being created wherever they are most efficient at that point in time. A fluid, ever moving and changing - a flux.
Coming back to where I started. After all these thoughts went through my mind, I came to the conclusion that my initial stance was not right. It was not in the line of natural evolution. The fittest will survive, and that is how nature works. And it is amazing how the ways of nature apply even to man-made things such as financial and economic markets!!
Well..what do I say..Nature Rocks!! :)
posted by Chaitra Chidanand at 1:56 PM
5 Comments:
well...first of all sorry for butting in :)
i think u have some economic views..
do u think the local grocer will ever recover though?? i mean if the big marts do go in.. theyll drop prices...to unprecedented lows... make losses for a couple of years kill competition off completely... and remember with walmart will come slave labor... walmart is called a slave driver in the US..i can only shudder to think what they will do in india!!! its depressing!!!
needless to say..i am a die hard socialist...
Good one!!
hi chaitra,
I like the overview of this vignette.. finally it is nature which controls everything :D
but check this scenario out :)
when a giant like Walmart approaches a supplier, he would not be able to deny business with them, as they might go to the competitor. But, when the supplier starts doing business with Walmart, they buy the whole quantity that the supplier can produce, and then start bargaining on the cost factor. As the supplier has exit from the market, and is doing business with Walmart only, he has to succumb to their pressure, and lower the prices, so much so that it starts hurting after a while. :D
no doubt, walmart gives away the best prices to the customers, but ruins the suppliers, either in terms of prices or in terms of dependency on Walmart to remain alive in the market :D
A response to Teju and Anurag..
Teju,
In any system if there are two or more players involved, the system will sustain only if both the players derive value out of it. Similarly in business. You cannot underestimate the power of the suppliers. If Walmart sets a precedent like the one you mention, no supplier would be willing to do business with them and that would lead to the eventual extinction of Walmart! Walmart will never let that happen. Walmart cuts cost not by squezzing every drop out of suppliers. They do negotiate hard and get highly competitive prices, but they do leave juice in the system for the supplier to quench his thirst too. Walmart values its relationships with suppliers and for that matter any business has to! Suppliers are like customers in the upstream market. They are as crucial as consumers in the downstream markets.
Having said that I want to make it clear that I am not supporter of Walmart entering India. I am trying to convince myself into being indifferent at least. I am not a fan of these massive corporations, especially in an industry like grocery retail, I prefer my local grocer whom I can exchange a few words with, give real time feedback and see it implemented real time too. I like being perceived as and valued as a value-adding-customer. I would any day prefer this to being a non-entity-shopper in one of those big marts of today. Again point to note here is that these huge retailers are trying to bring that small store advantages into their huge stores too. Hotel industry is an example, luxury retailers are also heading towards there. Commodity retailers are far from arriving at a best formula for the system thanks to the prohibitive labour costs that accompany such a facility. This precisely could be a strategy for these retailers to expand in India using low-cost labour to achieve these goals. But are the margins they make and the volumes they sell sufficient enough to cater to this, we will soon see.
In any case, my nature theory still holds. We cannot prevent nature-s cycles..we can only react, observe and learn. Our reactions are very much necessary to add value to these happenings. Because the sooner we react the sooner we move towards efficiencys. It is all in the game plan :)
Anurag,
Yes, I agree with you. I had the same depressing, shuddering thoughts. But look at the situation without any bias..What is the purpose of any business? To provide value for the customers and engage in continuous innovation and improvement to better the value proposition. If entry of a Walmart can drive towards that, then why not! How much can a protectionist attitude benefit us? We need these strong fish to come in. It will teach the smaller fish to swim better. Even if it comes only from the agility gained by dodging the big guy! Because, then you identify kinks in the big guy and build your strategy around his, incorporating all that you learned from him!
Easier said than done, i agree. Also many small fish get sacrificed in the process. However my point is that this sacrifice is needed to achieve long-term efficiencies. Just like a battle or a freedom struggle anything..again it amazes me how business works like history (empires and kings) and how business environment work like nature!
jittery straying thoughts...
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