Shanghai: transplanting the low-price model into Asia (2003)

Where do you put a model born at home?

What defines this decision is less the widening of the sales floor than the judgement that a cost design honed in Japan could be moved into a different market intact. The domestic pattern — hold location and taste steady, narrow down onto price as the variable, and keep sourcing and processing in-house — worked in China without being rebuilt, in a country where rent, wages and exchange rates were all different. Twenty years after entry, with the domestic business sunk in thin margins, Asia had rotated into the core of profit — because the original reading, build density before the imitators line up, held on both pricing and store openings.

That the weight of profit has moved offshore, however, brought new problems with it. Where the weak yen of the 1970s used costly imported food to keep competitors out, today’s weak yen inflates the yen value of overseas earnings while pushing domestic food costs up from within. The same currency now works in reverse — from barrier to entry into pressure on costs. How to rebuild low domestic profitability, and how far the earnings now concentrated in China can be spread, remain open. This decision, in which a model born at home bore fruit abroad, left behind the question of where the next phase of growth should be placed.