The Development of Distribution Systems in Japan Before World War II

The Developmentof DistributionSystems in Japan before World War II

Nobuo Kawabe Hiroshima University

Introduction

In the studyof marketingin Japan,traditional distribution systems beforeWorld War II havebeen contrasted with thosedeveloped during the periodof rapid economicgrowth after the war. In most casestraditional distributionsystems meant systems which remained from the Edo Period (1603-1868). Therefore,traditional systems of the Edo period have been contrastedwith innovativesystems of the postWorld War II period [22,30].. This can be explainedby the fact that manystudies of distributionactivities in the Edo Periodexist and there has been a greatdeal of interestin the study of marketingactivities after the war. However,there are few studiesof the developmentof distributionsystems in the period between the Meiji Restoration(1868) and World War II [15, 16, 31]. After the Meiji Restoration,particularly from the end of the Taisho Period(1912-1925) and the beginning of theShowa Period (1926-1989), there were many social changesin Japan, includingrapid industrialization, urbanization,the rise of massproduction systems, and the rise of the middle class.By this time various types of Westernproducts had gradually penetrated into the daily life of Japanesepeople [12]. It was not uncommonto find Japanesepeople wearing western clothing, eating western confectionery, and drinkingbeer and whiskey. As a resulta dual structureof consumption appeared: traditionaland modern(Western)-- a structureuncommon in Western countries. There were other factorswhich contributedto the changingmarket structure. Populationin Japan about doubledfrom 1870 to 1930, and consumptionexpenditure increased continuously (except during the depression years). It increasedby an annualaverage of 2.52% from 1874 to 1940. Urbanizationalso occurred. The ratioof peoplewho lived in citieswith more than10,000 people increased from 11% in 1867to 32% by 1932. The number of citieswith a populationfrom 10,000to 50,000increased from 196in 1881 to 537 in 1920. Cities with more than 50,000but lessthan 100,000increased from 12 to 31 in the sameperiod. Particularlybig citieswith more than 100,000had increased from 6 to 16 [18, 19, 23]. The growingconcentration of populationand the increaseof incomein the citiescreated a massmarket. At the sametime urbanpeople were developingnew life styles. Rural markets,which were relatively poor, nevertheless developed into a bigmarket for traditionalproducts like clothing,soybean paste, and soy sauce,which previouslyhad been produced in thehome. Because of thesechanges the life styleof Japaneseconsumers and the structureof the Japanesemarket also

33 beganto change.As a resultJapanese manufacturers of consumergoods had bothopportunities and problems in marketingtheir products. They adjusted to the changingenvironment by developingnew distributionsystems and marketingtechniques. The objectiveof thispaper is to explainhow and why the distribution systemsbetween the Meiji Restorationand World War II changed,focusing on the marketingactivities of manufacturers.It is saidthat the distribution systemof a productis createdby the relationship among the constituents who performthe marketingfunctions: manufacturers, middlemen, retailers, and sometimesconsumers. The relationshipamong these constituents can be shownin the degreeof integrationand the spanof the marketingfunctions eachperforms, that is, thedegree of thevertical integration of the marketing functions[26]. This in turn canbe determinedby the natureof marketsand products,the industrialstructure, transportation costs, and sodal factors such as the tax systemand laws. Beforethe Meiji Restorationthe distributionsystems for traditional consumergoods had beenwell established.Therefore, it mightbe possible to explainthe changing distribution systems between the Meiji Restorationand WorldWar II by analyzingwhy and how urbanization, the beginning of mass productionsystems, and the changinglife style of Japaneseconsumers influencedthe existingdistribution systems. In order to explainthis, we developfour categoriesbased upon the natureof products[10,28]: 1. Traditional-Differentiated 2. Tr aditional-Undifferentiated 3. Untraditional-Differentiated 4. Untraditional-Undifferentiated Traditionalproducts are thosewhich existedbefore Japan started industrializationsuch as kimonos,ceramics, sensu, sake, and soy sauce. Untraditionalproducts are thosewhich were introducedafter the Meiji restoration, such as chocolate,whisky, beer, cosmetics,soap, etc. Differentiatedproducts are thosedefined by advertisingand brand name.

The Existenceof the Traditional Systems

Mosttraditional products continued to be distributedin customaryways throughoutthe period, although some companies began to innovateand create newsystems. In thesedistribution systems wholesalers played an important role. Productsin the traditional-differentiatedcategory were producedin certainlimited areas because of spedticmaterial needs and special skills of craftsmen.It wasnot necessaryto advertise;they were not mass-produced, andthe qualityof productswere spread by wordof mouth. One traditional-differentiatedproduct distributed over the nationin the Edo Period was ceramics. The feudal lord of the Nabeshim-clan was the first to build a warehouse in Osaka to sell local ceramics. Ceramics were shippedfrom the town of Imari (in Kyushu)to Osaka.Osaka merchants then handledthe Imari-jaki (ceramics), and paid einokin (a tax)to thefeudal lord. Whenthe product arrived at thewarehouse in Osaka,middlemen were invited 35

to buy the ceramicsby bidding. The middlementhen soldto retailersand wealthyfamilies in the area Senba(still a well-knownwholesaler area in Osaka). As a result,Tajimi-yaki, Awaji-yaki, and otherceramics had begun to be handledthrough Osaka some three hundred years ago. Becauseguilds existeduntil the beginning of theMeiji Period,products from particular areas were handledby particularwholesalers. For example,Kaiyasu handled productsfrom Owari,and Tsujiso handled products from Awaji. It is saidthat the wholesalershandling ceramics in Osakanumbered about 140 or 150 by 1680 and that they controlledthe producersand expandedsales outlets as transportationsystems developed and demand grew [2]. Evenafter the Meiji Restorationthese wholesalers played an importantrole becauseof their accumulatedcapital and marketing techniques. After the war, however,their power decreaseddrastically. For example,the numberof employeesat Tsujisodecreased from more than 600 beforethe war to lessthan ten after the war. Amongproducers of traditional-undifferentiatedproducts, such as sake and soysauce, there appeared some who shippedtheir productsdirectly to Edo. For example,in 1747 Harubei Zaimokuya(later founderof the HakutsuruSake Brewing Company under the KanoFamily name), in Nada of Kobe,started selling sake to the Edo market. In the distributionof these typesof productswholesalers had leadership. For example,sake was shipped fromthe Kansaibrewers directly to wholesalersin Edo by consignment,and wholesalers in turn sold sake to middlemen with a commission of 5% or 6%. Thusa distributionsystem composed of brewers,shippers, Edo wholesalers, sakemiddlemen, and retailers developed. In 1694there were 126 wholesalers and 42 middlemenbetween wholesalersand retailers, but the number of wholesalersdecreased to 38 by 1809because of competition.Sake wholesalers in Edo alsohandled soy sauce. Sake and soy saucebrewers and shippersrelied heavily upon wholesalersto markettheir productsto retailers. The productwas shipped to wholesalerswithout set prices, and brewers did not learn of thesales results until designatedsettlement times each year. In orderto avoidthe abuseof wholesalers'power, brewers sold to variouswholesalers. For example,the KanoFamily, brewer of the Hakutsurubrand of sake,had business with eight competingwholesalers. After the Meiji Restorationsome companies in the brewingindustry developedthe nationalmarket. In 1885the Japanesegovernment issued a trade mark law, and the Kano Familybegan aggressively advertising its Hakutsurubrand in newspapers.The GekkeikanCompany, which was establishedby RokuroemonOkura in 1637,grew from a local brewerin Fushimiof Kyototo a nationalbrewer after the Meiji Restoration.Around 1883Gekkeikan began shipping its product to Tokyoand developing markets outsideof Fushimi.The completion of theTokaido Line (between Tokyo and Kobe)in 1889and the development of bottlinghelped to supportGekkeikan's strategyin developingthe nationalmarket [3,4]. The NodaSoy Sauce Brewing company, which was established through the mergerof varioussoy saucebrewers in Noda of Chiba, also began aggressiveadvertising after World War I in order to createdemand. By the ShowaPeriod Noda Soy Saucehad becomewell known throughoutthe country[21]. In thisway, brand names of somemanufacturers of sakeand soy saucebecame national ones before World War II; however,they couldnot changethe traditionaldistribution systems. In 1931 there were 8,481 sake brewersin Japan. Becausethe processof productionof thesetraditional- undifferentiatedproducts was fairly simple,and becausethey could use materialsfrom anywhere,there were manysmall-scale brewers all over the nation. It remainedthis way until after World War II whenthe processof brewingsake was scientifically analyzed and, through mass production, sake wasable to be producedyear-round. The distributionsystem of traditional- undifferentiatedproducts basically did not changebefore World War II. Some manufacturersof traditional products,however, introduced innovationsinto their productionand marketingsystems and changedthe nature of their productsfrom traditional-undifferentiatedto traditional- differentiatedby changingthe productconcept. These manufacturers found thatbecause of the developmentof massproduction systems and the increase of demand,existing distribution systems did not meet changingconsumer needs.As a result,new distributionsystems replaced old distributionsystems. One of the most typical caseswas the FukusukeCompany in the tabi (traditionalJapanese footwear) industry. TsujimotoFukumatsu established the FukusukeTabi companyin 1885. At the time there were two typesof distributionsystem for tabi. In one wholesalersplayed an importantrole, and manufacturersproduced tabi accordingto spedficationsproposed by wholesalers.These products were sold under wholesalers' brands. In the other case small-scale manufacturers designedand produced tabi themselves and sold them from the corner of their shops. Fukusukehowever had the policy"Do BusinessBy Volume",and introduceda mass productionsystem in order to sell products more competitively.Tabi traditionallywere hand-made,but Fukusukemodified importedGerman sewing machines to producetabi. In 1896Fukusuke started sewingwith machinesand by 1899it establisheda factorysystem. By 1923 it had establisheda belt conveyorsystem. At the sametime, it changedthe conceptof the a goodfrom one whichprotected against cold weather to an itemof fashion.Consumers who had previously worn tabi only in coldmonths beganwearing tabi throughoutthe year. As a result of the developmentof massproduction and increased demand,Fukusuke decided to enter the nationalmarket. The price and qualityof productsproduced by machinerywere competitive with localtabi manufacturersand sellersthroughout the nation. Fukusukeadvertised the qualityand low price of tabiproduced by machineand packaged each product for consumersto buy easily. Fukusukein the beginningused the existingdistribution system. Informationfrom wholesalersabout retailers was very important at the time when the transportationand communicationsystems and credit reporting companieshad not yet developed.Fukusuke developed another policy, "At Least One Retail Store In Every City Or Town,"and choseone powerful wholesalerin eachdistrict as its agent. By 1921Fukusuke had established branch and representativeoffices to sell its productsto 60,000 retailers through600 agents. In the Showa Period Fukusuke organized a sales network by establishingthe Tofukukai,an organizationcomposed of its retailersand agents. However,this systemdid not work well for Fukusuke. It was confrontedwith problemsof discountsales and of agentscompeting for customersoutside their own territory. Fukusuke tried to solvethese problems byreorganizing Tofukukai, but interestsamong sales agents clashed and it was difficultfor themto reachagreements. In orderto bringmore unity to the salesorganization, Fukusuke established sales companies. These sales companiesreplaced the sales agents' wholesalingactivities. In the establishmentof thesecompanies it wasnot Fukusukebut the wholesalers whichprovided the capital. This systemalso did not work well. Therefore around1931 Fukusukeput the salescompanies under the controlof sale officesin each area. As a result wholesalefunctions became completely integratedwithin the organizationof Fukusuke.Fukusuke later developedthe Fukusukerenmei(Fukusuke Association) in order to integratethe sales activitiesof retailers[7]. Among manufacturersof the traditionalproducts, some companies began to developmarkets outside Japan by changingthe conceptof their products.The NipponToki Companywas one of these.It wasestablished in 1905 by executivesof the Morimura company(one of the oldesttrading companiesin Japan) to produceand export chinaware. Executivesof Morimurawanted to exportJapanese chinaware but foundthat they could not exportthe Japanese product to Westernmarkets because of itslow quality and poordesign. They therefore introduced Western technology, machinery, and designto producethe product. In 1908Nippon Toki officiallychanged its companyobjective to read"To manufactureand sell Western style chinaware to the domesticmarket". In 1909it createda salesdepartment and soldits productsdirectly to departmentstores, hotels, restaurants, and to theJapanese Navy [201.

Changesin the Distribution Systemsof Untraditional Products

It was not common for manufacturers to control the distribution of traditionalproducts such as Fukusukedid beforeWorld War II. The control of distributionby manufacturerswas more obviousin untraditional- undifferentiatedproducts. Productsin this categorywere mainly imports from advancedWestern countries. There were someexceptions, however, such as the Suzuki Ajinomoto Company,which developedits original seasoningin Japan[1]. As industrializationand urbanizationin Japan developed,the westernizationof the Japaneselife styleprogressed and demandfor Western productsincreased. Japanese entrepreneurs who noticed the increasewanted to replaceimports with domesticproduction. Therefore entrepreneurs who hadbeen exposed to Westerncultures began to introducebasic manufacturing technologiesdirectly from foreigncountries and to developwestern methods of marketing. Somecompanies introduced American production and salessystems. For example,the House of Murai copiedthe systemsof the American TobaccoCompany [5]. However,most manufactures in thiscategory had to modifyor changetheir products,production, and salessystems in order to adaptto the Japaneseenvironment. A typicalexample was Morinagaand Company,which had been producingconfectionery since the Meiji Period. In 1898 Morinaga was establishedby Taichiro Morinaga, who had studied production methods in the United States. Morinaga began manufacturingWestern confectionery (marshmallows,caramel, and chocolates) in Japan. However Morinaga faced manyproblems in thehumid Japanese environment. In thebeginning it sold productsdirectly to "WesternLiquor And MiscellaneousShops" and to confectioneryshops in the cityof Tokyo. Demand for Western confectioneryincreased gradually. As the numberof customersin Tokyoand Osaka increased, Morinaga concentrated on productionand began using existing wholesalers for distribution.By 1906 it used about 250 wholesalersin the Osaka, Tokyo, Kyushu,and Sanyo districts.However, wholesalers competed for customersand invaded others' territories.Therefore, in orderto securecommon profits, Morinaga organized "sole"and "semi-sole" agents into the organizationof Koshinkaiand Seiwakai respectively.However, member wholesalers of the Koshinkaiindicated their intentionto handle productsof the Tokyo Kashi Kaisha (The Tokyo ConfectioneryCompany, later The Meiji ConfectioneryCompany) which was organizedby powerfulleaders in the businessworld. Conflictsbetween Morinaga and membersof Koshinkaiensued. Since membersof the Koshinkaithought the Tokyo ConfectioneryCompany would suppress Morinaga,they left Morinaga.As a result,Morinaga sent its ownemployees to localcities and begandirect transactions with localwholesalers. It also openedsales offices through existing merchants. Morinagaconstructed a modernfactory in 1925 and developed continuousproduction systems. He said,"In orderto completethis business it is necessaryto developclose communication among manufacturing, selling, and advertising,and coordinatethese activities well." To accomplishthis Morinagatried to establishits ownsales organization. However, because Morinagadid not haveenough capital and personnel, and because it would causeconflict with existingwholesalers, Morinaga began establishing sales companiesall overthe nationthrough joint ventureswith wholesalerswith whichit had alreadydeveloped good relationships. Morinaga provided less thanten percent of thecapital, and the joint venture executives came from the wholesalers.Representatives from both Morinaga and the wholesalers jointly developedsales policies. In 1923after Hanzaburo Matsuzaki, co-founder of Morinaga,studied the chainstore system which had developed in the UnitedStates, Morinaga openeda candystore chain to demonstrateproducts which were new to the Japanese.In the mid 1920sindependent retailers began suffering from competitioncaused by the developmentof departmentstores and chain stores in Japan. Therefore,in 1928Morinaga organized a groupof existing independentretailers in orderto strengthentheir competitive power [17]. 39

The trend for manufacturersto play a more important role in distributionsystems became obvious in the depressionfrom the end of the Taisho Period to the beginningof the ShowaPeriod. The rise of mass productionsystems coupled with products now able to be distributednationally (i.e. technicallycomplex and perishableproducts) led to changesin distributionsystems. Particularly after the Big Kanto Earthquakein 1923, becausecredit reportingorganizations, transportation, and communication developedrapidly, some changes in the role of wholesalersappeared. In addition,competition became very keen betweenestablished and new wholesalers,among retailers, and among manufactures. Manufactures developedspecial sales to wholesalersas a meansof pricecompetition [13, pp. 601, 728]. Pricecompetition similarly developed in untraditional-undifferentiated productindustries. In oligopolisticindustries such as beer production,sales agreementsworked well to preventcut-throat competition. Product was sold from brewersto retailersthrough wholesalers in the food industry,and wholesalersreceived a commissionfrom brewers. Beginningwith the depressionin 1920brewers found themselves facing price competition. In 1923Dai-Nippon Beer, Nippon Beer andMineral Water, andthe Kirin Beer companiesmade an agreement to maintainprices. Retailers, wholesalers, and brewersalso made agreements on retail and wholesale prices. In 1930Nippon Beer and Mineral Water withdrewfrom these agreementsand cut-throat competitionensued [27]. As a result,Dai-Nippon Beer in 1932proposed a mergerof Dai-Nippon,Kirin, andNippon Beer andMineral Water. In 1933 Dai-.Nipponmerged with Nippon Beer and Mineral Water. Kirin Beer refusedto merge but insteadreached an agreementwith Dai-Nipponto establisha joint salescompany to selltheir productsjointly for fiveyears. In 1934the beer industrywas recognized as an "importantindustry" under the ImportantIndustries Control Act, whichwas enactedto preventproblems causedby monopolies. Thus the beer industrycame under government control. Manufacturersof paperand sugar followed in the pathof brewers [32, 33]. In the soap,toothpaste, and cosmeticindustries, it was difficultfor manufacturersto reachprice agreements. As a result,manufacturers tried to controlthe distributionsystems composed of wholesalersand retailers. For example,the ShiseidoCompany established a sales organization in orderto avoidcompetition, to developmutual prosperity, and to developco-existence amongretailers. After its president,Noboru Matsumoto, visited the United Statesin 1923,he introducedthe chainstore system to Shiseido.It first organizedretailers, which handled only Shiseido brand cosmetic products. It alsowent into the operationof beautysalons in orderto supportretailers by demonstratingits cosmetics.At the wholesalelevel Shiseidoestablished a dealercontract system. Wholesalers were requiredto sell productsto only "ShiseidoChain Stores"at establishedprices in order to avoidcut-throat competition,to developco-existence and mutual prosperity, and to establish an orderlytransaction system. In 1927Shiseido thought it wouldbe goodfor itselfand its retailersto developwholesale organizations which would handle onlyShiseido products, and in thisway it integratedits marketingactivities. Thus, its wholesalersbecame sole agentsand eventuallygrew into sales companieslocated throughout the nation[11]. The same type of changestook place in the distributionof other untraditional-undifferentiatedproducts, where wholesalers traditionally played an importantrole in coordinatingsupply and demand.These changes could be seenparticularly in the role of localwholesalers, who became integrated intodistribution keiretsu (or groupof companieseach of whichperforms the distributionrole in the process)[25]. In the soapindustry, in additionto competitionamong manufacturers, price competition among wholesalers and retailersdeveloped. The Kao Company (like others in theindustry) organized its wholesalersand retailers in orderto avoidsuch price competition. When it soldNew Kao Soapin 1936Kao madean agreementwith wholesalerson the abolitionof discountsales in order to controlpricing to retailers. In 1927 the Lion ToothpasteCompany organized wholesalers in order to maintain pricesand integratedits wholesalersinto keiretsuby establishingthe Lion Group [14]. In this way manufacturersof famousbrands could control wholesalersand retailers. In the distributionof non-famousbrands of soap, wholesalersstill playedan importantrole [24]. There were few untraditional-differentiatedproducts (consumer durablessuch as sewingmachines, record players, and electricfans) before World War II. The marketingof consumerdurables was not fully developed until the rapideconomic growth in the late 1950s. The JanomeSewing Machine Company was one of thefew pioneers in the marketingof consumersdurables before World War II. The historyof Janomebegan when Yosaku Ose and others established Pine Sewing Machine Worksin 1921. At that time, the Japanesemarket was controlled by Singer SewingMachines because Singer had developedvery aggressivemarketing activities,including establishing its own retailers,sewing schools, and an installmentplan. Ose madea purelyJapanese-made home sewing machine and in 1929 reorganizedPine Sewing Machine Works into Pine Sewing Machine Company. He discoveredthat it waspossible to massproduce his machine. He stillhad to developinnovative marketing activities to competewith powerfulSinger. After studyingthe marketingsystem of Singer,he foundthat selling sewingmachines required the integrationof manufacturingand marketing becauseof the natureof the product.Ose thought it wasnecessary to create a massmarket, something which Singer (which sold its productsto high- incomefamilies) had not yet developed.In orderto sellhis productsOse createda "monthlysave - monthlypayment" plan. In thissystem customers paida certainamount of moneyevery month until the machine was paid off, whichwas useful in creatinga massmarket. Singerstarted an installmentplan in Japanas early as 1907,but it was not fully developeduntil around1929 or 1930. American-typeinstallment planswere introducedthrough sales of pianosand organs,gramophones, watches,and cash registers. Prices on theinstallment plan usually were about twentypercent more than the cashprice. Pine testedthis salessystem in Tokyo in 1930 and introducedit nationallyin 1935. In the sameyear it establisheda new factory in Nakano 41

(Tokyo) for its sewingmachine business and in this way integratedits manufacturingand marketingfunctions. At the sametime, with the objective of developinga marketfor Western-stylesewing and sewingmachines, Pine openedthe Japan Western Sewing School. It alsoopened its own retail stores, throughwhich it demonstratedhow to usesewing machines. Pine increased anddeveloped its salesforce and quicklyincreased the numberof its retail storesfrom 7 in 1935 to 53 in 1938. In 1935 Pine changedits name to TeikokuSewing Machine Company and began using the brand"Janome" for its sewingmachines [6]. In 1939 the Tokyo ElectricCompany, a producerof small electric appliances,merged with the ShibauraWorks Company, a producermainly of heavyelectric equipment and machinery,to establishthe Tokyo Shibaura ElectricCompany (today's Toshiba Company). Tokyo Electrichad begun manufacturingand sellingtungsten light bulbsin 1913. It had establisheda salesdepartment with both a sellingand an advertisingdivision. It had sent two employeesto the United Statesto studyGeneral Electric's sales system. In addition,under the leadership of KichioShinsho, the Sales Manager, it had developeda campaignto publicizethe use of tungstenlight bulbsand to educateconsumers about lighting. Tokyo Electricinvited R. P. Parrot of General Electric to Japanto educateits salesmenon the use of thesenew electricbulbs and on salestechniques. Parrot contributed to the innovation of TokyoElectric's marketing activities. After 1914Tokyo Electric organized a nation-widesales network with representative offices. In 1916it penetrated into the continentof China,establishing representative offices in Shanghai and Dairen. TokyoElectric also began production of homeelectric appliances such asfans, irons, refrigerators, washing machines, and vacuum cleaners because it wantedto increasethe consumptionof electricity. In 1927 it made agreementswith GeneralElectric and Shibauraon the salesof homeelectric appliances.In additionit establishedthe ElectricFinance Company, through whichit developedan installmentplan. In the beginningof the ShowaPeriod Tokyo Electric sold its products mainlyto largecustomers (such as government organizations) rather than to individualcustomers. However, in 1930 it beganselling Blue Box Mazda Lampsto electriclight companiesand Red Box Mazda Lampsto consumers. In 1938 it divided the nation into ten districts and established the Mazda Sales Companyto sell productsto retailers. Tokyo Electric decidedto set up authorizeddealers in Tokyo,Yokohama, Shizuoka, Nagoya, Kyoto, Aomori, Beppu,and Osaka. Theseauthorized dealers later were organizedinto The Tokyo Mazda SalesCompany, along with other salescompanies in each respectivedistrict [29].

Conclusion

After the Meiji Restoration,industrialization and urbanization created marketsfor consumergoods in Japan.Western goods and production systems were introducedinto Japanthrough this process. As a result,both Western and traditionalgoods often existed in the sameindustry. The Japanese,for example,began drinking beer and whiskyas well as traditionalsake. They also ate Westernconfectioneries (marshmallows, caramels, and chocolates) alongwith traditionalJapanese confectioneries ("yokan" and "senbi").They wore Western clothingwith their traditional tabi. Becauseof this dual structureof consumption,rather unique Japanesedistribution systems developedbefore the war. Entrepreneurswho started production of Westernconsumer goods to developthis new massmarket were able to establishbigger companies than those in traditionalindustries because they introducedWestern (mostly American)mass production and mass marketing systems and modifiedthese to adjust to the Japanesemarket. (Sometimestraditional products were completelyreplaced by the massproduced goods as in the caseof sugar,flour, and paper.) In this waymany changes were introducedinto the traditional Japanesemarketing system. Generally, the firstmovers maintained a position of leadership,and eventoday remain so: Shiseidoin the cosmeticindustry, Kao in the soapindustry, Santory in the liquorindustry, Dai-Nippon and Kirin in the brewingindustry, and Janomein the sewingmachine industry. Althoughthese companies eventually reorganized their distribution systems,they started selling their product through existing systems, which they quicklyrealized were inefficient. Becausethey developedmass production throughlarge-scale modern factories, they had to developmass sales systems aswell. The integrationof the flowof productsand information was different from that developedin the United States. Most Japanesecompanies reorganizedexisting wholesaling systems for the sametype of productsinto sales companysystems. By establishingsales companieswith existing wholesalers,manufacturers did notneed to raisecapital. Usually, wholesalers providedcapital and personnel. Of course,there were many conflicts between manufacturersand existingwholesalers. However, the qualityand price of mass-producedgoods, as well as aggressiveadvertising, gave manufacturers powerto controlwholesalers. Manufacturers sent a few employeesto sales companiesto integrateand coordinatethe activitiesof both manufacturers and wholesalers.As a result,although sales companies were independent legallyand financially,they were underthe controlof manufacturers,which created distribution keiretsu. In somecases manufacturers of untraditionalproducts had to develop retail stores: Morinaga openedcandy stores and Shiseidoopened beauty salons. Althoughthese products were traditionalin Westernmarkets, in Japanit wasnecessary to demonstratesuch new products to the consumerin order to increase and stabilize sales. In the distributionof traditionalproducts, the existingdistribution systemsof the Edo Period remained at least until the war broke out. Manufacturersproduced traditional products by traditional production systems and marketedthem in localmarkets. They did not developmass production and mass marketingsystems. As a result, manufacturersof traditional productsremained small and local, although there were some exceptions. For example,when Fukusuke introduced a massproduction system for tabi,it had to developnew distributionand marketingsystems. In the new systemsthe relationshipbetween manufacturers and wholesalersresembled the system usedfor untraditional-undifferentiatedproducts. In additionthere were some manufacturers of brands such as Hakutsuru and Gekkeikan Sake, and KikkomanSoy Sauce, which developed aggressive advertising and marketing activitiesto sell theirproducts in the nationalmarket. They becamerather large companies,but basicallycould not changethe existingdistribution systems.Although these manufacturers gained comparatively strong power overwholesalers (because of theirestablished brand names), wholesalers still playedan importantrole in the distributionof theseproducts. It wasnot until the time of the "distributionrevolution" in the 1960s,when supermarkets developed,that changesoccurred in the distributionof these traditional industries.

References

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