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The Version of Record of this manuscript has been published and is available in BUSINESS HISTORY 18 January 2017 http://www.tandfonline.com/10.1080/00076791.2016.1274735 Reaching for global in the Japanese cosmetics industry, 1951 to 2015: The case of Shiseido Maki Umemura, Lecturer in International Business, Cardiff Business School, Cardiff University, Aberconway Building, Colum Drive, Cardiff CF10 3EU, United Kingdom. tel +44 (0)29 2087 6950; email: [email protected] (corresponding author) Stephanie Slater, Senior Lecturer in International Business, Marketing and Strategy, Cardiff Business School, Cardiff University, Aberconway Building, Colum Drive, Cardiff CF10 3EU, United Kingdom. tel +44 (0)29 2087 6949; email: [email protected] Biographical notes Maki Umemura is a Lecturer in International Business at Cardiff Business School, Cardiff University. Stephanie Slater is a Senior Lecturer in International Marketing, Strategy and Business at Cardiff Business School, Cardiff University. Word count: 8,661 words (including notes, tables and figures, but not references) 1 Reaching for global in the Japanese cosmetics industry, 1951 to 2015: The case of Shiseido Abstract This paper examines the various factors that have shaped the internationalisation of the Japanese cosmetics industry over six decades of economic transformation from 1951 to 2015. Whilst Japanese cosmetics companies have expanded overseas, their focus has largely been in Asia. This article advances a multifactorial explanation that analyses a number of factors that led to regionalisation, including foreign consumers’ perception of Japan, managerial perceptions and strategies toward export markets, as well as the challenges pertaining to cross-border mergers and acquisitions activities by Japanese firms. Using Shiseido as the case example, the article offers a highly textured account rooted in an understanding of the evolving historical setting, cautions against simple explanations and extends previous discussions concerning the reasons behind the regional orientation of the Japanese cosmetics industry. Keywords: internationalisation, regionalisation, Japan, cosmetics, Shiseido 2 Introduction Rugman and Verbeke argued that most of the world’s multinationals are predominantly ‘regional’ rather than ‘global’, based on their analysis of company sales. In this context, the regions refer to macrogeographical areas such as North America, Europe and Asia. Rugman and Verbeke noted that, whilst there were many multinational firms, only a comparatively small number were ‘global,’ which they defined as having sales of 20% or more in each of the triad regions.1 Oh and Rugman found a similar pattern of regionalisation in the cosmetics industry, given that most firms tended to internationalise in their home region.2 We believe that a deeper understanding of the regional orientation of multinational firms can be gained from studying the specific circumstances of particular industries and firms from a historical perspective. In this manuscript, we explore a range of factors that shaped the regional orientation of Japanese cosmetics companies as they pursued foreign markets. Japanese cosmetics firms – such as Shiseido, Kao and Kosé – have struggled to become ‘global’ players. As shown in Table 1 below, even today, Japanese firms are less effective in expanding overseas outside their home region compared to the world-leading cosmetic companies, such as L’Oreal or Unilever. Whilst the leading global players have dispersed sales across North America, Europe and Asia, sales among Japanese firms are heavily concentrated in Asia. Insert Table 1 here. In the light of the views of Rugman and his co-authors, this article investigates the diverse reasons that led to the failure of Japanese cosmetics firms to gain substantial presence in distant markets from 1951 to 2015, using the case study of a leading Japanese cosmetics company, Shiseido. The paper argues that the regional orientation of the Japanese cosmetics industry was due to a 3 combination of factors, such as: the domestic outlook of managers in Japanese firms; challenges of international management from cultural differences (for instance, in foreign acquisitions), industrial structure, as well as problems in branding and marketing strategies that resulted in the belated development of an international portfolio of place-based brands. The impress of culture can be seen across these factors. This paper does not claim that Japan’s cosmetics firms were unique in their pursuit of regionalism, but illustrates how their experience was characteristic of wider trends. We suggest that, to understand the regional rather than global orientation of certain firms, we need to engage with the specific circumstances of such firms over time. In our view, the largely quantitative approaches by Rugman and others do not fully capture the significance of company strategies rooted in historical forces – whether political, cultural or social – in shaping patterns of firm internationalisation. The paper does not suggest that regional orientation is a problem in itself. Indeed, the geographical and cultural proximity of growing Asian markets, for instance, facilitated the progression of Japanese cosmetics firms into the region. However, many Japanese firms did endeavour to expand into the North American and European markets from the 1960s, with limited success. We suggest that the myriad reasons behind the partial success and failure are worthy of investigation. Justification for studying Japanese cosmetics and Shiseido The Japanese cosmetics industry offers a good case to illustrate the enduring challenges regarding the internationalisation of culturally-sensitive industries in distant business and consumer cultures. Unlike other products, such as automobiles or consumer electronics, cosmetics are less readily disembedded from their country of origin, and face high pressures from local responsiveness. Anthropological research has long demonstrated how culture has a pronounced impact on the use of cosmetics.3 Shiseido was chosen as part of our case analysis as it offers an opportunity to examine the firm-level dynamics of the Japanese cosmetics industry. 4 As one of the oldest cosmetics firms in the country and the leading domestic firm in the sector for decades (in total and overseas sales), the company has become the most ‘international’ among its Japanese counterparts. Yet, along with other Japanese cosmetic companies, Shiseido also lacked the global reach of the world leading cosmetic companies. Shiseido’s historical experience highlights firms’ need to heed a complex array of external and endogenous factors over time in entering distant markets. Literature review On the evolution of the cosmetics industry Business historians in various countries – from France to Russia – have explored the evolution of the cosmetics industry.4 While some earlier works looked into themes such as individual entrepreneurship,5 many works in the English language from the United States, such as those by Peiss, Scranton or Walker, have examined issues of race, gender and identity.6 In Beauty Imagined, Geoffrey Jones offered a comprehensive account of the global cosmetics industry from the late 19th century to the present day.7 With the global expansion of this industry, our work builds upon such recent research that has explored the theme of internationalisation.8 A number of business historians in Japan have also written on the evolution of the country’s cosmetics industry, which include perspectives from marketing9 or strategy.10 A recent volume by Ida also touched upon the theme of internationalisation through a rare and ambitious account of the ‘rise and decline’ of major players within the industry from the early 20th century. Whilst his work does not address particular historical debates or theories, Ida’s work – building upon published corporate histories and biographies – offered a thorough and descriptive narrative that provided extensive insights into the activities of seven major cosmetics firms. Yet in terms of internationalisation, his work does not elaborate on the dynamics or reasons behind the largely regional orientation of Japanese cosmetics companies. This paper attempts to address this gap. 5 Firms, Japanese firms and internationalisation A vast body of literature in international business has examined how firms internationalise11 as well as how they manage their overseas operations.12 Within this body of work, this paper particularly relates to the work of Rugman and regionalisation,13 and the integration- responsiveness framework.14 It also relates to research on the relationship between psychic distance and internationalisation,15 and the impact of culture on cross-border mergers and acquisitions (M&A) activity.16 Various scholars have specifically written on the internationalisation of Japanese firms.17 Among these, many have reflected upon the challenges among Japanese managers operating in culturally distant environments.18 An older strand of such scholarship explored the experience of Japanese manufacturing firms when they established manufacturing facilities in North America and Europe.19 More recent scholarship has studied the post-acquisition problems faced by Japanese firms in mergers and acquisitions.20 The leadership of foreign nationals in Japanese multinationals in the 1990s has also attracted widespread attention.21 Several reasons behind the regional orientation of the Japanese cosmetics industry Lack of active internationalisation