International Management Strategy

2. Describe the large-scale retail store law found in Japan and show how the Structural Impediments Initiative (SII) is bringing about change in Japanese retailing.

Competition from large retail stores has been almost totally controlled by Daitenbo, the Large Scale Retail Store Law. Designed to protect small retailers from large intruders into their markets, the law requires that any store larger than 5,382 square feet (500 square meters) must have approval from the prefectural government to be built, expanded, stay open later in the evening or change the days of the month they must remain closed. All proposals for new large stores are first judged by MITI (Ministry of International Trade and Industry). Then, if local retailers unanimously agree to the plan, it is swiftly approved. However, without approval at the prefecture level (all small retailers in the area must agree), the plan is returned for clarification and modification that may take several years (10 years is not unheard of) for approval.

Designed to protect small retailers against competition from large stores, the law has been imposed against both domestic and foreign companies. It took ten years for one of Japan’s largest supermarket chains to get clearance for a new site. Toys `R’ Us fought rules and regulations for over three years before it gained approval for a store. Besides the “large-scale retail store” law, there are myriad licensing rules. One investigation of the regulations governing the opening of retail stores uncovered 39 different laws, each with a separate license that had to be met to open a full-service store.

Agreements between the United States and Japan under the Structural Impediments Initiative (SII) have had a profound impact on the Japanese distribution system by leading to deregulation of retailing and strengthening rules on monopoly business practices. The retailing law has been relaxed to permit new outlets as large as 1,000 square meters without prior permission and...