1.

Japanese macro market analysis (PESTLE model)

1.1. Political environment
Japan is a constitutional monarchy with the emperor being the head of state. Like
many other monarchs in the world, Japanese monarch has very limited say
concerning the political affairs of the country. However, the people and the
constitution of the country regard the emperor as ‘the symbol of the State and of
the unity of people’. The prime minister and the cabinet have the executive power
to administer the state affairs.
Tokyo is the capital of Japan. Japan has a post-war pacifist constitution. It plays a
considerable role in international community and is a major aid donor (BBC,
2020). While the internal political environment is stable, Japan has some very
powerful neighbours with a long history of diplomatic challenges. It has territorial
disputes and political disagreements with a number of countries, notably Russia,
China, South Korea, and North Korea.
Japan maintains a very close relationship with the United States. This relationship
is part and parcel of Japan’s foreign and security policy. Japan has also been
putting a lot of efforts to build and maintain relationship with other world powers
such as India, the UK, France, and Australia. However, an effort to amend Japan’s
post-war pacifist constitution has raised concerns. It is politically contentious and
may impact on trade and foreign direct investment.

1.2. Economic environment

Japan is the 3rd largest economy in the world with a total GDP of around $4.9
trillion. It is also the 2nd largest economy in Asia. It is a member of the G7, G20,
APEC, and ASEAN. It has a mixed economic system, albeit the government
closely works with industries. Motor vehicles, electronic equipment, machine

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tools, steel, ships, chemicals, textiles, and processed foods are some of the major
industries in Japan.
Japanese companies need to pay corporate tax on the income they generate in
Japan and abroad. On the other hand, foreign companies operating in Japan pay tax
only on the income they generate within Japan. There are four types of corporate
tax in Japan i.e. corporate tax, corporate inhabitant tax, enterprise tax, and special
local corporate tax. The current corporate tax rate in Japan is 23.2%; however, the
government has recently approved a plan to reduce the tax rate to 20% for
companies that raise wages aggressively and boost domestic capital spending.

1.3. Social environment

Japan is ranked as the 10th most populated country in the world. Its current
population is 126.2 million (Worldometer, 2021). Shintoism and Buddhism are two
major religions while the major language is Japanese which is spoken by around
99% of the country’s population.
Japan faces a number of social challenges. Ageing population and sinking birth
rate are two of the biggest challenges Japan faces today. Many sources forecast
that the Japanese population is likely to fall below 100 million in 2048 and about
87 million by 2060. This will severely impact on Japan and it will lose out to
regional powers, particularly China.
Many people in Japan prefer Japanese companies to foreign ones. This makes
trading difficult for foreign companies. Indeed, this is one of the main reasons as to
why many foreign companies failed in Japan. However, it is also true that some
foreign companies did very well in Japan as well. Therefore, it is extremely
important for foreign companies to carry out a detailed environmental scanning
before entering into Japan.

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1.4. Technological environment
Japan is one of the most technologically advanced countries in world. It has been
pushing technological innovation and creativity in such a way that many countries
will struggle to emulate. The Japanese are well-known as extremely creative in
searching out and learning to use modern technologies.
Japan’s innovation can be found in a variety of fields. Likewise, Japan is well
ahead of many other advanced countries in robotic development. Indeed, it has
more than half of the industrial robots in the world.
The contactless payment system has been in Japan for a long time; indeed, long
before many countries even thought about it. Japan has also done tremendously
well in areas such as space research and development, chemicals, optics, rail
transport, and semi-conductors. These developments offer great opportunities for
both Japanese and foreign individuals and companies.

1.5. Environmental factors

Japan is a relatively clean and environmentally responsible nation. However, it
faces some environmental challenges today. Trash produced by the modern
society, industrial activities, and agriculture contribute to the production of a great
deal of waste. Japan is indeed under pressure to minimize waste and control
environmental pollution.
Japan is one of the countries, most affected by calamities and natural disasters.
Tsunamis, floods, earthquakes, mudslides, cyclones, and volcanic eruptions hit
Japan from time-to-time. These disasters cost Japan billions of dollars for reforms
and rebuilding. In fact, Japan is a less popular tourist destination because of natural
disasters, high-cost, and language barriers.

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1.6. Legal environment
People can work in Japan as employees, dispatched workers, independent
contractors, and directors. All employees enjoy employment rights and benefits
such as maximum work hours, work breaks, holidays, and maternity leave.
Companies need to register employees for mandatory pension insurance, health
insurance, unemployment insurance, and workers’ accident compensation
insurance. All of these apply to employment relationships regardless of the
citizenship of employees.

2. Japanese soft drinks market

By confirming its previous trends, the Japanese soft drinks market appears to
be in good health: expansion is continuing as well as ongoing competivity and
market opportunities. The dynamicity of this sector is also due to the growth of per
capita consumption and the release of new soft drinks that better respond to the
necessities of the Japanese consumers.
The Japanese beverage industry is widely known for the vast range of product
offerings in the market. There are so many companies selling soft drinks in
different flavors and sizes. The uniqueness of soft drinks available in the market is
quite a reflection of the Japanese’ culture. The Japan Soft Drink Association says:
“At any one time, more than 5,000 types of nonalcoholic beverages from about 700
companies are available”. Each year, nearly 1,000 new beverages appear on
Japan’s crowded store shelves. Only 10 percent survive a year or more, while the
rest fizzle out. At 22 gallons per person per year, Japanese soft-drink consumption
still is only about one-third of the U.S. level, but it is rising.
According to the report of Japan Soft Drink Association: “The market size of
beverages except alcoholic drinks in Japan is about 5.1 trillion yen (about 51
billion dollars)”. The only beverage that was able to beat soft drinks in terms of
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market share is tea drinks. This is still a successful feat considering that tea has
been an essential part of Japanese culture even from centuries ago, while
carbonated drinks are newly introduced from the Western market just two centuries
ago.
There are several soft drinks manufacturers in Japan. Of course, the leading
company is Coca-Cola, who happens to be the number one soft drinks brand
globally. However, the other top players in the market are all proudly Japanese.
These companies are Suntory, Kirin, Ito En and Asahi. The fact that they have
so many leading manufacturers of soft drinks who sell in and out of Japan is a
testament to how much the Japanese enjoy their soft drinks.
The reason why Japanese soft drink manufacturers are so successful in Japan
simply boils down to taste preference. Majority of the Japanese population find
carbonated drinks that originate from the West. This does not only apply to
soft drinks, but also to other forms of beverages such as juices.
In Japan, there are also other interesting types of carbonated drinks or soft
drinks. One brand that stands out a lot is Pocari Sweat. Pocari Sweat is Japan’s
local counterpart for the is a popular sport drink Gatorade. While Pocari Sweat is
almost water-like, there are also carbonated soft drinks that make use of
unconventional ingredients. In fact, carbonated sodas hailing from Japan may
sometimes use milk, burnt rice and even barley (which is a popular ingredient for
making beer).
There is also quite a number of beverage companies competing in Japan to top the
carbonated drinks market. One solid competitor in this arena is Asahi. The giant
beverage manufacturer does not only manufacture world class beer, but they are
also responsible for the production of Asahi soft drinks.
On the other hand, the company Suntory focused more on creating fewer product
lines that would stand out. There were rather successful with this since their soft
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drink brand called Bubble Man is a hit in Japan. Bubble Man is available in a
variety of flavors.
Similarly, Kirin Lemon is another popular product that is lemon based. The drink
is a product of famous beverage manufacturer Kirin, who is also known for their
beers. Kirin and CC Lemon are two products that show how popular lemon-
flavored carbonated sodas are in Japan.

3. Fentimans competitive advantage relative to competitors in the Japanese

soft drinks market using Porter’s (1985) Value Chain
3.1. Inbound logistic
The inbound logistics for Fentimans refers to using natural ingredients with
sourcing the globe in Americas, Europe, and Asia. To ensure quality and
traceability, Fentimans take ownership of the drink making process from start to
finish, with the simple ethaos. Once the natural botanicals have been sourced and
prepared, the multi-stage botanical brewing process begins.

3.2. Operations
Highly experienced flavor team of Fentimans will craft a perfectly balanced flavor.
The team are charged with creating the depth of taste, mouth-feel and texture
people expect from a Fentinmans drink. Thomas Fentiman's botanical brewing is a
technique using a combination of infusion, blending and fermentation of natural
ingredients. This approach has not changed much in over 100 years as the
knowledge and expertise have been passed on from generation to generation of the
Fentiman family.
Processes of produce botanical brewing start by infusing botanical ingredients in
simmering water, to extract the natural flavors. It’s the same with obtaining flavor

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from an array of botanical ingredients; the flavor creation process results in a
concentrated and balanced botanical liquid, which is then ready to be fermented.
Fermentation takes place for 7 days; allowing rich and complex flavors to slowly
develop as the yeast, sugar and natural pear juice come to life. To complement and
enhance the fermented botanical liquid, natural flavors and essential oils are
extracted inhouse from expertly sourced ingredients; then mixed with the
fermented botanical liquid. This results in the indulgent, distinctive and complex
flavors. Water and natural beet sugar are added before carbonation adds sparkle to
the liquid.
3.3. Outbound logistics
In 1905, Thomas began using the recipe and producing botanically brewed ginger
beer which he delivered door-to-door using a horse and cart for transport. But the
world has changed a lot over 100 years since Thomas Fentiman founded the
business. Fentimans have had to adapt to meet the demands of an ever changing
world. Changes in the way people shop has meant our door-to-door deliveries have
made way for selling online and in shops, bars and restaurants. Fentimans can
analyse and optimize the outbond logistics to explore competitive advantage
sources and achieve its business growth objectives.

3.4. Marketing and Sales

At this stage, Fentimans will highlight the benefits and differentiation points of
offered products to persuade the customers that its offering is better than
competitors. In order to compete in an extremely competitive market, the company
has branched out of traditional soft drinks into the highly lucrative mixers market.
The company is on target to hit £50m in revenue by 2020 and has grown from a
small family business to a globally recognized brand.

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Some examples of Fentimans’s marketing and sales activities: the brand stages a
botanical pop-up bar tour across food, drink, regional, and music festivals
throughout the UK in the summer months. Their plan is to channel a very British
feel with a summer garden party theme. Guests can relax in deck chairs under huge
umbrellas to shield the sun (or more likely shelter them from showers). They also
channel memorable moments and understand the value of the influencer. The rise
of social influencers has presented them with an opportunity and they have realized
the power of Instagram. The company aims to create ‘instagrammable’ moments
for consumers and in May 2019 they took their pink Landrover to London’s
Covent Garden and created a stunning floral installation. It was so insta-genic that
it received more than 1000 pieces of free tagged content in just one week with an
estimated reach of over 10 million people.

3.5. Service
The pre-sale and post-sale services offered by the Fentimans will play an important
role in developing customer loyalty. The modern customers consider post-sale
services as important as marketing and promotional activities.
According to the British Soft Drinks Association the UK, the premium soft drinks
category is growing at 33.1% per year and is now worth £517 million. Premium
soft drinks are evidencing a strong performance in the on trade sector with almost
12 pence in every £1 spent on soft drinks and mixers going on a premium option.
Growth in this category has also been fuelled by the move towards lower / no
consumption of alcohol. Consumers are looking for exciting and high-quality non-
alcoholic drinks. New craft soft drinks are being developed continuously and this
leads to a fight for shelf space which makes it a tough market for Fentimans. The
company prides itself on only using natural ingredients and produce their own
unusual flavors such as: dandelion and burdock, wild English elderflower,
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mandarin and Seville orange jigger, cherry cola, curiosity cola, traditional ginger
beer, limeflower, rose lemonade, sparkling lime and jasmine. The company also
boasts a mechanical brewing process which is unique and this has helps them stand
out from the myriad of copycats. They are the only botanical brewers in the UK
and believe that the unique way they make their drinks gives a very different flavor
with a distinctive mouth feel. All flavors are manufactured in-house which gives
them control over their IP. From September 2019, Fentimans is launching a range
of new light soft drinks. This range includes a lower-calorie version of the brand’s
rose lemonade, sparkling elderflower and sparkling raspberry flavours. The range
will be sold in 25cl bottles each containing fewer than 60 calories with a sugar
content reduced to 4.8g per 10 cl, which is below the UK sugar tax threshold.

3.6. Infrastructure
The firm infrastructure denotes a range of activities, such as quality management,
legal matters handling, accounting, financing, planning and strategic management.
Effective infrastructure management can allow Fentimans to optimize the value of
the whole value chain. Fentimans can control the infrastructure activities (or
commonly called overhead costs) to strengthen the competitive positioning in the
market.

3.7. Human Resource Management

As Fentimans’s is a Small and Medium sized Enterprise, limited human needs to
be allocated effectively in order to maximize profits and future cash flow.
Fentimans can analyse human resource management by evaluating different HR
aspects, including recruiting, selecting, training, rewarding, performance
management and other personnel management activities. The effective HR

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management can allow Fentimans to reduce competitive pressure based on
motivation, commitment and skills of its workfoce. The company can also achieve
tis cost minimization objectives by analysing hiring and training costs with their
relative return. The heavy dependence of Fentimans on employees’ talent will
increase the importance of this value chain support activity.

3.8. Technology Development

Fentimans uses a traditional process and fine ingredients. The business is owned by
the great grandson of founder Thomas Fentiman and although the processes have
been updated, the superior quality and taste of the drinks has not changed. The
botanical brewing uses a combination of infusion, skilful blending and
fermentation of natural ingredients which provides depth of flavor and a three-
dimensional mouth feel.
The company has recently moved into new premises and has as a result the
capacity to produce 40 times the flavors that it could before and the workforce has
grown to 50 and is forecast to grow to 70 over the next 5 years. The company
invests heavily in innovation and has a small team working full-time on devising
new unusual flavors and has also spent £250,000 on a new IT system to ensure that
the company’s systems are totally up to date.

3.9. Procurement
The procurement in value chain denotes the processes involved in purchasing the
inputs that may range from equipment, machinery, raw material, supplies, raw
material and other items necessary for producing the finished product. Due to its
linkage with multiple value chain activities, Fentimans should carefully consider

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its procurement activities to optimize the inbound, operational and outbound value
chain.

In conclusion, in order to create a competitive advantage Fentimans’s outsourced

the production process and therefore allows focusing on out-bond logistic,
marketing mainly through PR and after sales-service to create value for the
company (margin). Particularly technology department (on-site flavor testing labs,
E-marketing activities) is one of the major strengths and source of competitive
advantage.

4. The fit of the Japanese market opportunity with Fentimans’ mission and
capabilities and any further research required prior to launch
In this section Japan’s market attractiveness relating to Fentimans’s capabilities is
evaluated. Although some risks according the carbonates market are evident, risks
in general are comparably low and entering Japan provides Fentimans’s the
opportunity to engage in an Asian market in order to create knowledge for future
actions in the Pacific Rim region. Although showing the longest distance compared
with the other markets screened (increasing exporting costs), but some of
Fentimans’s products have been imported by small companies into high end off
premise locations which might reduce the risks and efforts for Fentimans.
Japan heavily depend on imports for their food and dink supply, so this is a good
business opportunity for those who are in drink industry. The country’s self-
sufficiency rate has declined to 39% across food groups and the government has
set a goal rising this number to 45% by 2025. As a result, making the industry a
viable and profitable business opportunity for those who want to introduce new
drink products in the market. They are willing to adapt their products to Japanese
market needs. As mentioned above, the consumption trend in Japan has changed a
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lot, they are likely to choose Western habits when it comes to drinking
consumption. Besides, consumers in Japan increasingly favor healthy, low calories
and fruit-based carbonates which is a strength point for Fentimans to introduce its
organically brewed soft drinks.
In general, the Japanese consumer base is highly educated with significant
disposable income. The main elements of the consumer mindset are: novelty
seeking, high expectations, relative price sensitivity and an interest in foreign
goods. Japanese consumers seek novelty and highly value new experiences and
products; they have a preference for originality, new products, new functions and a
large variety of food. Japanese consumers tend to have very high expectations for
product quality and are willing to pay a premium price, provided that the products
exceed their expectations. Product freshness and the origin of the product are very
important. Japanese consumers are relatively price-conscious, an attribute that has
become especially apparent in recent decades. There is larger demand for ready-
made meals, processed and frozen foods, and reasonably priced private-label
products. And Japanese consumers’ interest in foreign goods has been strengthened
by increased exposure to global culture and media.
Japanese consumers tend to buy groceries on a daily basis in local stores, and the
large number of grocery stores in Japan—18,400 grocery stores and 54,400
convenience stores—is in response to this preference. Japan is shifting toward
dual-income households with a busy lifestyle, and eating out is popular in Japan.
Japan has a total of 620,000 restaurants and bars, and the Michelin Guide has given
stars to 227 restaurants in the Tokyo area alone, making it the city with the most
Michelin stars in the world. This show a high potential for Fentimans.
With the younger generation taking an interest in Western drinks which are
growing in popularity. The continued trend of urbanization is also leading to
demand for more variety new experiences, and rising disposable income means
Fentimans soft drinks enter the Japanese market | 12
that consumers are willing and able to pay for it. Fentimans with many creativity
recipes will attract young people in Japan.

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