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    Apparel Distribution: Inter-Firm Contracting and Intra-Firmorganization

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    Anirudh Ghosh
    This document discusses theories of the firm and transaction cost theory as it relates to apparel distribution and contracting in Japan. It summarizes how transactions move from inter-firm contracting when external transaction costs are higher to intra-firm organization. It then provides examples of contractual practices between department stores and manufacturers in Japan and how the apparel industry fragmented along the value chain.

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    Apparel Distribution: Inter-Firm Contracting and Intra-Firmorganization

    Uploaded by

    Anirudh Ghosh
    141 views13 pages
    This document discusses theories of the firm and transaction cost theory as it relates to apparel distribution and contracting in Japan. It summarizes how transactions move from inter-firm contracting when external transaction costs are higher to intra-firm organization. It then provides examples of contractual practices between department stores and manufacturers in Japan and how the apparel industry fragmented along the value chain.

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    Strategy Case study

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    Japanese Apparel

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    This document discusses theories of the firm and transaction cost theory as it relates to apparel distribution and contracting in Japan. It summarizes how transactions move from inter-firm contracting when external transaction costs are higher to intra-firm organization. It then provides examples of contractual practices between department stores and manufacturers in Japan and how the apparel industry fragmented along the value chain.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    141 views13 pages

    Apparel Distribution: Inter-Firm Contracting and Intra-Firmorganization

    Uploaded by

    Anirudh Ghosh
    This document discusses theories of the firm and transaction cost theory as it relates to apparel distribution and contracting in Japan. It summarizes how transactions move from inter-firm contracting when external transaction costs are higher to intra-firm organization. It then provides examples of contractual practices between department stores and manufacturers in Japan and how the apparel industry fragmented along the value chain.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    APPAREL

    DISTRIBUTION
    INTER-FIRM CONTRACTING AND INTRA-FIRMORGANIZATION

    Group 8 (Section A)
    THEORY OF THE FIRM
    It consist of number of micro-eco theories which deals with the existence, structure and behavior
    of an organization
    In simplified terms, the “theory of the firm” aims to answer these questions:
    Existence. Why do firms emerge, why are not all transactions in the economy mediated over
    the market?
    Boundaries. Why is the boundary between firms and the market located exactly there as to
    size and output variety? Which transactions are performed internally and which are
    negotiated on the market?
    Organization. Why are firms structured in such a specific way, for example as to hierarchy or
    decentralization? What is the interplay of formal and informal relationships?
    Heterogeneity of firm actions/performances. What drives different actions and performances
    of firms?
    Evidence. What tests are there for respective theories of the firm?
    TRANSACTION COST THEORY

    INTER-FIRM CONTRACTING
    VS INTRA-FIRM
    ORGANIZATION
     Devised by Ronald Coase in 1937
     Internal Transaction cost > External
    Transaction cost, firms go for Inter firm
    contracting
     Or else firms opt for internal
    organization
     Vertical Integration/ Forward
    Integration
     Devised by Ronald Coase in 1937
     Least-cost-avoider theory
    THE HIGH-END
    DEPARTMENT STORES GENESIS
    Higher Status labels did not have shops • Department stores had its roots with
    Suits were not sold via tailors
    antecedents
    DS was the ultimate buying point • Multi-floored buildings with number of
    stores
    • E.g. Tobu had 1st floor for
    CONTRACTUAL PRACTICE cosmetics, 2nd for women apparels and
    • Right to return by Onward Kashiyama in mid- 3rd and 4th for women clothing and
    1950s jewelry
    • Ensured that he did not lose sales for lack of THREE CONTRACTUAL TERMS
    department store stock EMERGED
    • To handle business risk, Kashiyama took two 1. DS obtained title goods and
    steps: customary right to return at full price
    1. Control over price 2. Contractual right to return
    2. Seconded Employees (to monitor sales) 3. Goods on consignment
    THE MIDDLE MARKET
    (MASS MARKET CHAINS)
    General merchandize stores/super stores
    Three largest chains sell more merchandize than largest DS
    Positioned variously in enormous expanse between Walmart and Sachs (US equivalent)
    Ito Yokado
    Not discount stores, good value at slightly higher price
    Can find Prada, but more space to American Tourister
    Goods show price sensitivity, customers can easily gauge quality
    Clean stores, good natured employees
    Shimamura
    True discount store; shabby place; harassed few workers
    “Oh, so cheap”
    SPECIALITY STORES

    Sub-segment of middle segment


    Different since owned or franchised by a specific brand
    Relatively newersegment
    Created for particular segments when forward integration madesense
    Aoyama shoji forbusiness suits segment
    San’ei foryoung chic segment
    Fast Retailing for Cheap chic casualsegment
    FRAGMENTATION ALONG VALUE CHAIN
    Raw Material • Mostly imported, 913 establishments, 8700 workers

    Thread Manufacturing • Spinning firms, 540 firms, 25700 workers, also imported

    Thread Finishing • Brokers (922, 6600 workers), Finishing (5480, 23600 workers)

    Weaving, knitting • 31800 firms, 169300 workers

    Printing and Finishing • Wholesaler (6005, 52900 workers), Print shops (6305, 75200), foreign
    competition

    Garment Manufacturing • Apparel maker (in-house), independent factories (50890, 566700 workers)

    Wholesaler • 23200, 286800 workers, foreign imports (16102bn yen)

    • Department stores (2364, 156800 workers)


    Retailing • Other outlets (183633, 644524 workers), convenience stores
    KEY PLAYERS
    Apparel Makers
    Design in-house or approach a designer
    Manufacture in-house or outsource manufacturing
    Keep no fabric or thread in stock
    Wholesalers/Brokers
    Reflects division of labor into very small operations
    Provide information about market, bear risk
    Economize on search costs for trading partners
    Retailers
    Departmental Stores
    Other outlets
    Convenience stores (Sell underwear, socks etc., handle 11795bn yen’s worth)
    CONTRACTUAL AGREEMENTS

    Business suits
    Shift from tailor-made to ready-made suits
    Reduced retailers’ reputational capital (Department stores affected)
    Emergence of new players, Aoyama shoji and Aoki International
    Basic business suits, long shelf life
    Owned stores, exploited scale economies
    Forward integration to obtain accurate information about consumer
    preferences, plan production statically beforehand
    CONTRACTUAL AGREEMENTS

    Young chic
    Department stores traditionally avoided this segment
    Rising consumer incomes, highly trend conscious
    Emergence of Harajuku’s fashion industries
    San’ei and Five Foxes major players
    Forward integrated to capitalize on-
    Repeat purchases
    Response time
    Quick Response systems
    Integration limited to wholesale in upstream
    CONTRACTUAL AGREEMENTS

    Young chic casual


    Fast Retailing at the forefront with its “Uni-Qlo” stores
    Replacing dark suits with Khaki casual
    Non-age uni-sex casual wear
    Integrated wholesale and retail to cut on response
    time
    CONTRACTUAL AGREEMENTS

    For segments other than the extreme cases


    Wholesaling only
    Economies of scope leading to scale
    economies (San’yo Shokai), marketing expertise
    Manufacturing only
    Economies of scope leading to scale economies (Wacoal),
    manufacturing expertise
    Both manufacturing and wholesaling
    Onward Kashiyama
    IMPLICATIONS

    On Exclusivity
    Huge quantities on imports
    High correlation between exchange rates and imports
    On Efficiency
    Highly competitive market
    Low distribution margins
    On Opacity
    Cost based rationale (Price mechanisms)

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