Creating A Consumer-Oriented Distribution System
5. Public and Private Sector Policy Recommendations
The structural change occurring in the distribution system is promoting private sector
competition in terms of price, quality and service, which in turn stimulates the market
mechanism to generate a wider range of products. The change will also create markets that
are more open internationally.
The private sector must work together with the government to expedite this structural change
within the industry and address the following issues in order to alleviate additional problems
such as certain small business issues.
[ The Role of Government ]
Structural change in the distribution system must ultimately be driven by the private sector's
internal reform efforts. The government's role should be limited to implementation of the
necessary measures to accomplish deregulation through its March '95 Action Plan on
Deregulation. The scope of this plan should be expanded through annual revision.
Deregulation of the distribution industry should be undertaken by local government as well,
which should refrain from enacting regulations that go beyond the intended boundaries of
federal legislation, such as the Large-Scale Retail Stores Law. Local government regulations
should be brought in line with the Action Plan on Deregulation. And in order to ensure
fairness and enhance transparency in local regulations, the local government should also enact
their Administrative Procedures Law as soon as possible.
More detailed proposals on deregulation will be submitted to the government by Keidanren.
The following provides an overview of these proposals:
- Incremental Abolition of the Large-Scale Retail Stores Law
The Action Plan on Deregulation calls for a revision of the Law by FY '99 and under the April
'95 Economic Measures to Cope with the Yen Appreciation, the original five-year plan was
compressed into three years. In line with these decisions, a study should be undertaken, as
soon as possible, into the incremental abolition of the Large-Scale Retail Stores Law.
- Revision and Repeal of Regulations on Market Entry and Pricing
- Examples of Abolition of Regulations on Market Entry Designed to Balance Supply and
Demand Prevention of the use of alcohol and tobacco by minors must not be regulated by the
tax legislation. All retailers that are willing and able to do so, should be permitted to sell
alcohol and tobacco products.
- Example of Relaxation of Qualifications Systems that de facto Regulation Market Entry:
Standards governing the general retailing of pharmaceutical products should be relaxed -- for
instance, the sale of certain pharmaceutical products should be permitted without a
supervising pharmacist present.
- Example of Revision of Pricing Regulations:
The tariff structure for leather goods should be reviewed, tariffs on agricultural and marine
products should be lowered and price regulations on manufactured tobacco products should
- Deregulation in Other Areas:
- o Periodic inspection of designated weighing machines is required on these items of sales-
by-weight. However, number of items listed are too many.
- Regulations must be relaxed that restrict late-night work by women at tofu manufacturing
and similar firms;
- Standards, certifications and product markings should adhere to international standards;
- Overseas test results and certifications should be accepted in Japan;
- Verification by the private sector must be allowed to a greater extent;
- The period of quarantine required for imported plant matter should be shortened
- Developing a New Distribution Policy for Small Business
Small businesses are experiencing economic challenges due to stiffer price competition and
to the difficulties in finding individuals to take-over family owned businesses, among other
factors. At the same time some small business owners see structural reform as providing an
opportunity for change in a variety of key areas such as: boosting developmental importing,
linking manufacturing with local industries to develop new products, creating new forms of
retailing, and providing more tailored (localized, specialized and personalized) services.
The government should support the efforts of these innovative small businesses through its
Small Business Distribution Policy. The operations of all four government agencies
dedicated to providing small business financing, including the three finance corporations,
should be reviewed in order unify and streamline small business policy and services.
Small wholesalers should form partnerships with wholesalers in other industries -- through
pooling schemes for example -- to strengthen vertical integration with manufacturers and
retailers. This would enhance transportation and information exchange as well as traditional
wholesale functions such as retail product planning and overseas procurement. Greater
support should be provided by the government in the areas of joint and development
importing; joint transporting and use of distribution centers; and, increased use of EDI and
product codes, as well as development of new product codes.
The most critical change that can be made by small wholesalers is for them to recognize the
needs for global integration and for more efficient distribution and information technology (on
a scale that goes beyond existing businesses) and for the human resources necessary to carry
out these changes. Government and the private sector must work to insure that Japan has
developed the human resources required.
Support for small retailer has traditionally been generated by the development of
neighborhood shopping districts. However, this is not the most effective method of ensuring
that the needs of the neighborhood residents will be met, as illustrated by the drop in small
commercial businesses and high number of vacant shops. In order to create attractive
shopping centers which serve the needs of local communities, the government must turn to
legislation such as the Law on special measures concerning promotion of improvement of
commercial gone and the Law on the promotion of small and medium retail business. The
government must also provide a wider range of alternative support strategies that emphasize
the efforts of individual small retailers that have the will and ability to be innovative.
Specifically, greater support should be provided for developing and securing human resources
and for business start-up financing to promote creation of independent venture enterprises in
the manufacturing sector. Support should also be increased for efforts to promote the
concept of "Joint Existence-Joint Prosperity" ventures between smaller and larger retailers,
which focus on specialized services and on their strength.
[ Joint Public/Private Sector Efforts ]
- Policies to Promote Competition and Business Practice Reform:
The success of deregulation is contingent on the public and private sectors working together
to create a free, transparent and fair market economy that meets their respective expectations.
By adopting systems such as prior notification and consultation with the private sector, the
government could explain the purpose of government initiatives, such as the Unfair Price
Cutting and Anti-Monopoly Law (November '84), the Unfair Returned Goods and Anti-
Monopoly Law (April '87), and the Guidelines on Distribution and Trade Practices of the
Anti-Monopoly Law (July '91). Manufacturers and wholesalers alike have pointed out the
inequities, noting that the increased buying power of large retailers gives them significant
advantages in purchase price negotiations, returned goods arrangements, frequency of
delivery, loans of personnel, and many other areas. These factors should be taken into
account by the government when setting competition policy.
Corporate behavior related to competition should be reviewed in line with the principals
noted in Keidanren's reports entitled
"Keidanren Charter for Good Corporate Behavior"
(September '91) and "Japanese Business Practices; Current Status and Reform Efforts" (July
'93). Coercive sales, inequitable treatment of returned goods, unfair price reductions and
other questionable business practices must be redressed and made equitable and transparent.
- Environmental and Waste Management Strategies:
In its April '94 report, Toward the Creation of a Circulating Distribution System, Keidanren's
Committee on Distribution called for joint efforts to be undertaken by the manufacturing and
distribution industries, consumers and recycling organizations, in cooperation with the
government, to create a "circulating distribution system" that targets the collection and
recycling of waste (known as "static distribution") for uses such as heat generation.
The private sector must develop products and packaging that can be easily recycled, and they
must reduce packaging bulk. Under the new the Law for the Promotion of Utilization of
Recyclable Resources, the private sector must increase its efforts to recycle all waste resources.
In order to reduce air pollution and lighten the burden on the environment, businesses should
employ planned ordering and joint distribution systems to reduce the number of deliveries
and should increase the use of clean energy vehicles.
The federal government should designate local government agencies to operate pilot systems
for collection and recycling of general waste. The government should lend its full support to
the development of an experimental system that could, when deemed successful, be
replicated nationwide. At the same time, efforts must be undertaken to make consumers
fully aware of their recycling responsibilities and charges must be levied for waste collection
as an incentive to reduce waste volume.
[ Private Sector Initiatives ]
- Information Technology:
The business community should encourage the use of QR (quick response) and ECR
(efficient consumer response) new approaches that utilize information technology to improve
distribution efficiency. Overall, the efficiency of distribution systems must be improved in
all areas, including manufacturing, distribution, transportation and financial services.
Information systems such as POS and EDI should be adopted, and product and transportation
coding, as well as other business protocols, should be standardized. All industries related to
the distribution system should establish information databases.
Similarly, the private sector must encourage the use of multimedia retailing systems and the
development of other new forms of information technology. The business community must
make efforts to become more responsive to trends such as the increase in women in the
workforce and the rapid aging of the Japan's population.
The government must take responsibility for providing the basic infrastructure to support
information and communications operations throughout the nation. It should take action on
several fronts, including:
- Faithful implementation of the Plan on Information Technology in Administration
(December '94) and the Action Plan on Deregulation;
- Enactment of measures to ensure preservation of electronic data contained in accounting
books etc., as required by law;
- Conversion from paper-based to electronic data communication systems, particularly for
processing of applications and distribution of information.
- Expanding Consumer Awareness and Responsibility
With the expansion of deregulation and the increased range of product choices, consumers
must be given more information about product quality, price and use and must be educated
about their rights and obligations as responsible consumers. They must take responsibility
for their choice and use of products.
The private sector must develop new a framework for providing consumer protection that is
responsive to advances in information technology and other progressive trends. Products
must be sold with complete information and appropriate instructions for their safe use. In
particular, the emphasis placed on freshness of food products and on attractive packaging
actually increases both the environmental burden on society as well as the cost of delivery,
packaging and waste. These priorities also serve as a barrier to imports which do not always
adhere to the standards of Japanese products.
With the enactment of the Product Liability Law (July ' 95), distributors must now work
together with manufacturers to:
- retail national brand (NB) products as well as private brand (PB) products and direct
import products, for which distributors are directly responsible:
- provide customers with accurate product information;
- ensure a high level of product safety;
- improve quality control and provide safety information at the point of sale;
- establish dispute settlement systems to address customer complaints;
- and, take many other steps as required by law, to fulfill their social responsibilities.
Home Page in English