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 ]

  1. Deregulation:
  2. 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
    1. 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.
    2. 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.
    3. 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 be liberalized.
    4. 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 significantly.

  3. Developing a New Distribution Policy for Small Business
  4. 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 ]

  1. Policies to Promote Competition and Business Practice Reform:
  2. 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.

  3. Environmental and Waste Management Strategies:
  4. 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 ]

  1. Information Technology:
  2. 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.

  3. Expanding Consumer Awareness and Responsibility
  4. 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.

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