The aim of this report is to focus on the economic environment and socio cultural trends in Japan that affects the craft beer industry in Australia. The economic environment refers to the various factors in the business market as well as the broader economy that affects the particular industry. The economic environment is basically classified into two types that includes- microeconomic environment and macroeconomic environment. Microeconomic environment influences the decision making of the business organizations that involves- actions of the each organization and consumers. On the other hand, macroeconomic environment impacts on the whole economy and each participants. Numerous economic factors mainly act as an external constraint on the business organizations (Prajogo, 2015). Social- cultural trends refer to the factors that affect the business organizations. These factors include customs traditions, consumer’s behavior of that specific country, fashion trends and activities in the market affecting the actions as well as decisions of the business. Socio-cultural perspective has been one of the vital factors that affect the decision of managers and the strategic target of the entities entering international market. One of the main socio-cultural factors that influence the business organization is the legal factors. Appropriate factor identification while analyzing the business strategically might lead to good strategic company’s alignment to the society. This report highlights on the economic environment and social cultural trends of Japan that affects their craft beer industry. In this study, Japan has been chosen as the nation at which Australia’s craft brewery industry must expand their business.
Craft beer industry in Japan can achieve success in this nation owing to its diverse beverage industry. The organic beer has been one of the Japan’s culture since time immemorial. In addition, microbreweries have gained huge popularity since the year 1994 as it supplies diverse tasting beers with huge style variety that seeks in matching the stress on craftsmanship, ingredient provenance and quality. It has been noted from the recent study that Japan has been one of the largest consumer of beer and has been ranked seventh largest in the year 2014.There are mainly five domestic beer producers that dominates 92% of this market in Japan. At present, these producers are now looking for investment opportunities in the overseas and produce diversifying their products. Japan’s economic environment influences the craft brewery business organization that operates in this nation.
Macroeconomic environment are mainly huge economic factors that affect the whole economy and the business organizations either in direct or indirect way. These factors includes- Interest rates, Inflation rate, Taxes, exchange rate, rate of unemployment, savings rate, recession, depression, level of consumers confidence and discretionary income of the consumer. On the other hand, microeconomic factors that affects the business organizations includes- size of the market, demand, supply, rivalries, suppliers and distribution chain. The government of Japan has introduced economic policy, which is known as Abenomics with the help of three ways that includes monetary easing, structural change and flexible fiscal policy. This economic policy has helped this nation in stabilizing its exchange rate, stock market, improved corporate investment and enhanced business operations. In addition, the increase in consumption tax rate also adversely affected the profit margin of the business. The Japanese government has also increased the Value added Tax (VAT) to 10% this year in order to boost growth of the business.
The Australian craft beer industry must focus on both the microeconomic and macroeconomic factors before taking the decision of expanding their business in Japan’s market. The macroeconomic factors are explained below:
The rate of inflation refers to the sustained rise in the general price level of products and services that leads to decrease in purchasing power of the respective country. The central bank of Japan attempts in keeping inflation within the target level for stabilizing the economic growth of the nation. High inflation rate adversely influences the economic environment as the consumer expenditure on products and services decreases. The economy of the respective nation slows down owing to low consumer expenditure of commodities and services. On the contrary, deflation refers to decline in level of product price owing to decrease in consumers purchase and money supply (Ferraro & Briody, 2017). Although this benefits the consumers, the unemployment level increases owing to decrease in business expenditure. The Government of Japan has set the target of inflation rate at 2% in order to run the economy in smooth way. Recent statistics reflects that the rate of inflation in Japan has shown slight variation over the years and has been below the target rate. In the year 2017, the inflation rate in Japan has slightly expanded from the previous year. As a result, the prices of breweries rise and hence the Japanese government strategized to increase sales tax. Though the price increased slightly, it did not affect the purchasing power of consumers. However, the craft brewing industry invests more in producing their product and this improved their overall productivity.
The Bank of Japan (BOJ) has reduced the rate of interest to 0% and this made the currency of Japan more cheaper to the business or the individuals. Due to this low interest rate, the individuals and the business organizations preferred to keep the money in cash instead of depositing in the bank. However, this created difficulty for the craft beer companies as they had no means in transferring the funds from Yen (Japanese currency) to other currencies. On the contrary, this implementation of zero interest rate has encouraged the craft brewery business in spending or investing it in other business activities. In addition, this low interest rate enhanced the business confidence of Japan, which in turn improved their overall productivity. Moreover, it also encouraged this brewery firms in investing in riskier assets in order to secure return that potentially drives new bubbles in asset. Hence, this increased the profit margin in the craft brewery business.
The craft brewers mainly accounts for 2% of the total beer sale in this nation. However, it has been reflected from recent study that tax incentives have benefitted the bigger brewery companies and hence allowed the other substitute products in dominating the Japanese market due to less cost (Lambert & Schwieterman, 2012). Meanwhile, the finance industry in Japan has changed the tax rate in order to enhance competitiveness of the craft beer industry in this country. In addition, the firms in this industry attained huge profit from the increasing tax rate as the products were sold at high price. It has been forecasted by the some economist that leveling of tax will increase the growth of this industry’s craft brewers in the year 2018.
Volatile rate of exchange in this country has put the business activities at risk. In addition, this exchange rate has influenced the craft brewery’s operating profits that have no international exports but this face vital foreign competition in the domestic market. As the craft brewery industry also operates in the global market, fluctuations in currency exchange rate adversely affects the business. However, as the firm’s exchanges beer products across borders, this leads to involvement of two currencies. Thus, volatile exchange rate in Japan leads to profit or loss for this particular business.
Recession or financial crisis adversely affects the craft beer industry in Japan. Recession is the phase when the GDP growth rate, income, manufacturing as well as retail sales of the economy declines over the certain period. During this period of financial crisis, the sales revenue as well as profit of craft beer companies declines. As a result, the beer producer reduces hiring of new employees in business (Kose, Otrok & Prasad, 2012). In addition, the producers stopped in producing new beer product and this aids in attracting less number of customers in business. The companies in this industry reduced their marketing as well as advertising expenditures, which in turn leads to loss of new as well as old customers in the business. Moreover, the quality of beer also declined in this nation owing to this financial crisis.
Individual’s discretionary income is defined as the income of the consumer that has been left for expenditure and saving after giving taxes and for personal necessities that includes food, shelter and clothing. It includes the amount spent on the luxury goods and clothing. As discretionary income shrinks amid the loss in job or decrease in pay, the business organizations that sells discretionary product suffers the most during recessionary period (Wetherly & Otter, 2014). The craft beer business mainly focuses on the discretionary income of the individual because this amount of money that the individuals have left in order to purchase the non essential commodities and services. Due to increase in discretionary income of the individual in Japan , the craft beer firms attains higher profit as they purchases the beer product with their left amount of money.
Market size refers to the total number of people in the particular market who are mainly the potential customers and sellers of a specific commodity. The organizations focus on the market size before expanding their business or launching their product in that nation. Japan is mainly driven by middle class customers and hence is the leading nation of consumer as well as producers of the commodities and services. However, they exerts significant influence in the global markets. The market size of craft beer industry in Japan has been expanding over the last few decades. In addition, the Japanese microbreweries have also expanded that was mainly utilized in trading the craft beer product at international level (Kumar, Gaur & Pattnaik, 2012). Eventually, the small breweries have also improved their business by producing high quality commodities and providing quality service.
The craft beer industry in Japan has a wide variety of beer types which is available at various prices. This however means that every segment of the beer market of this nation reacts to various economic cycles. As a result, both the demand and supply of various types of beer product changes according to the economic condition of Japan. It has been opined by Olajire (2012), brewing industry in Japan has been considered as recession proof. During the recession phase (2008-2009), the demand for this craft beer product in Japan reduced slightly as the consumers switched from high expensive beer to less expensive ones. Moreover, there was no decrease in supply of beer product at that phase. Now, in this expansionary phase the manufacturers of this industry have increased their production owing to increase in demand for the craft breweries and microbreweries. However, both these product have become highly expensive due to rise in demand. As a result, the large brewers of this industry attained huge benefits from this economics of scale.
The competitors play a vital role in business success as increase in competition leads to improvement in product quality. There are several competitors in the craft beer industry in Japan. The competitors in this industry are mainly of two types that includes small breweries and large breweries. This means that small breweries faces huge competition from the large breweries with respect to types, quality and pricing of beer product. Owing to this increase in competition, the small breweries develop or innovates good quality beer product at low price in order to compete with large breweries.
Suppliers influences the financial performance of business in direct way. They play a vital role in providing good quality product to the firms. This facilitates the firms in maximizing profit and attains good reputation (Hede & Watne, 2015). It has been noted from the recent study that craft brewer industry has expanded for the last few decades due to new product development by the suppliers. Besides producing new product, they also provides it with high quality in order to help the firms in attracting new customers and attaining higher profitability.
Distribution chain refers to the chain of intermediaries through which the product reaches to the customers end. This chain includes wholesalers, suppliers, distributors and online services. These four tier distribution system provides challenges to the small brewery firms those who are looking for expanding their business in the global market (Harrison, 2013). As the small brewery firms invest less money in distribution chain, they cannot supply the product to all consumers through online services. As a result, this benefitted the large craft beer firms in this industry as they provides the product to the customers through their own website and also attain feedback from them. This feedback facilitates the beer firms in improving the quality and design of the new product. Hence, this distribution chain helps the large companies in attaining competitive advantage over the rivals.
Every business must consider socio-cultural factors of the respective nation in order to attain high revenue from the sale of product. Change in society and peoples culture of a specific nation influences the business and hence the firms should consider these two factors in order to compete with their rival firms. There are various socio-cultural factors that influences the business organization and thus the Australian craft beer company must focus before expanding their business in overseas (Hamilton & Webster, 2015). These factors includes- changing consumers preferences, demographics, methods of advertising, internal business environment, communication means, consumers purchasing power, education of the consumers and growth rate of the population in Japan. These factors are illustrated in following way
One of the vital socio-cultural factors that affects the craft beer business in this nation is changing consumers preferences. As the craft beer falls under the luxury good, the consumers preference matters the most to the firms in this industry. It has been seen from the recent study that the preference of the consumers has changed over the last few years. Moreover, different styles as well as priorities of the consumers help the firms in producing the beer product accordingly. Hence, this facilitates the firms in attaining the customer’s loyalty and trust.
Variation in demographics has also been considered as the vital factor in the global business market. This means that changes in gender proportion and various religious as well as ethnic groups also have significant influence on the craft beer industry. Japan is one of the densely populated country in the globe (Craig & Campbell, 2012). The size of population and density of this nation is extreme and this significantly impacts on the business in host of areas. It has been noted from the recent statistics that increase in total population in Japan positively affects the business growth. This is because the demand of beer products increases owing to increase in population in Japan. Moreover, gender variation also does not affect this industry as both the female and male persons consume this product.
Advertising method are closely related with the socio-cultural changes. The firms focus on the rivalries action and target customers before advertising the product in the market (Cai & Yang, 2014). As there is huge middle class consumer’s base in this nation, the craft beer firms of this nation chooses to promote the products both in traditional as well as online mediums. In addition, this enhances the growth of each firm in this industry. However, the business owner of craft beer industry should understand the appeal of Jaapnese that dwell in the community in that place where the firms is to site. Now, they plan their advertising method accordingly in order to conform to their people’s language.
The interaction of the craft beer company with its customers and stakeholders also influences the decision making procedure of the organizations. The firms in this industry choose to interact with their customers through online mediums (Babatunde & Adebisi, 2013). In addition, the decisions of the stakeholders are taken into account while producing new types of beer product. However, the internal business environment in this industry has been quite good and hence this helps the company in expanding their business.
Communication means refers to the communication style of the employees of firms through which they interact with their customers. People from different countries are hired by this craft beer industry of this country. In addition, the languages spoken by them help in interacting with the customers in order to attain feedback on each product.
The purchasing power of the consumer also influences the business organization. As this industry has huge middle class customers base, the firms in this industry sets the price of each type of beer product by focusing on their purchasing power. This facilitates the firms in increasing their overall sales and maximizing profit. Moreover, this strategy helps the craft beer firms in enhancing their financial performance over the years.
Each firms in this industry tries to provide knowledge about the products to their customers. For this, the education of the customers matters the most. Highly educated person tries to achieve knowledge about the various types of beer product before purchasing it (Aronczyk, 2013). However, if the consumers do not have any education, then this faces difficulties to the firms as lots of time of the employees engages into explaining about the product. The players in this industry invest their timer in educating the customers for informing them the best method in consuming this product.
In Japan, the two main social drivers behind this increasing trend of craft beer are accessibility of the products as well as information through internet and varying taste of the Japanese. The bulk of consumers of craft beer are younger age, which is below 40 years and they consumes this product as social trend by obtaining information through social trend. Most importantly, the craft beer industry in Japan has been attracting international brewers those who are committed to this industry’s long terms future (Aquilani et al., 2013). Due to advancement of technology over the last few years, the Japanese order this product through online mode. The changing taste of Japanese people affects this industry in positive way. This means that changing consumers palate forces the industry in producing different flavors, which provide their customers utter satisfaction.
Although the craft beer industry in Japan has been booming over the last few years, it is basically a fraction of the beer market (Alexander, 2013). The recommendation on which Japan can be potentially attractive to the Australian craft beer industry for expanding their business are given as under-
Furthermore, the Australian craft beer industry must focus on both the economic environment and socio-cultural trends before expanding their business in Japan.
At present, Japan has been experiencing the beginning of its second phase of microbrew boom through their renewed interest of consumers, convergence of craft brewers, increasing cost of import. This is making the craft beers of this nation more affordable for their customers. Huge number of craft brewers in this industry attempts in venturing overseas by building capabilities for meeting domestic as well as global demand for this product. From the above study, it can be concluded that the economic environment and socio-cultural trends are favorable for doing business in this nation. Advancement of technology in the craft beer industry helps the firms in enhancing productivity. Moreover, inclusion of customers in development of product’s decision making procedure facilitates in improving their product quality. In addition, other competitors in the market create huge competition within the industry. As a result, this helps the firms in developing good quality and innovative product. This development of new product helps in attracting new customers in business, which in turn leads to higher profit. Foreign investment also expands the business in the global market.
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