The Kao Corporation defines itself as a learning organization that uses a product division system for its international expansion. While this strategy seems to be extremely effective in its local markets of Japan and to a lesser extent South East Asia, it is an ineffective strategy to pierce the European and North American markets because of differing consumer tastes. International markets require a particular sensitivity to the local culture that cannot be learned with a ten-day stint at the company training facility, or even a two-year immersion in a foreign culture.

I propose that Kao's growth potential could be best served by executing their global strategy of 1990 to focus their research centers "to analyze local market needs and characteristics and integrate them into the product development process," and to move headquarters' business level functions to local markets in South East Asia, the US, and Europe. This is an export via sales subsidiary strategy. Great company synergies are possible internationally with resources allocation (leveraging resources), and product development and improvement (integrating activities), but concerning marketing, this strength is not as realistic.

Kao has developed its strategy over the company’s 100-year history, and while the strategy has evolved the same core elements of producing a high-quality product at an affordable price has not waivered. This seems like the most basic strategy in the world, but has failed to be implemented by company after company. Since the launch of their laundry detergent in 1940 Kao has made increasing efforts to grow into other markets, which it feels, it can apply its core competencies to.

The learning organization that Kao strives to continue to be is aided by its flat organizational structure which helps reduce redundancy and encourages information sharing. Examples of this can been seen within the organization through developments like Glycerin Ether; was developed as a joint project between three Kao labs. The systems that have been put in place to encourage communication among research departments, such as the monthly R&D conferences, have helped Kao to be an industry leader in innovation.

One of Kao's great successes, the Sofina product line, illustrates how their flat organizational structure and culture as a learning organization can be hugely successful. R&D worked together with marketing to change the perception of the local population that a high price equated high quality, and showed them instead that everyone can afford a superior product when it is fairly priced. This led to Sofina's 15.6% share in the growing cosmetics market, with their brands being at the top of every single product category with the exception of lipstick. Lots of Kao's products have had similar successes in Japan and to a lesser extent South East Asia, even when going up against internationally established competitors like Procter and Gamble, Unilever, and L'Oreal. So, why have they had such a difficult time moving into the US and European markets? Kao has been unable to sufficiently tailor their offerings to the West's differing consumer tastes.

The corporation's strategic development has been a slow evolution. This has served them well in their local markets, but has hampered them internationally. The decision to focus on expansion into highly diverse foreign markets is not a process that is easily achieved with a slow change in how the corporation thinks, but rather one that forces the corporation to drastically change their way of thinking. There should be little debate that Kao has failed to successfully expand into the international market successfully.  Only ten percent of the company's total sales are international, despite the fact that Japan had only 2.34% of the world's population in 1990 (Exhibit 1). While the opportunity for international expansion has been recognized, the company has failed to develop the core competencies necessary to gain a competitive advantage.

While the paperweight corporation works efficiently for a single market company it can be a hindrance when expanding beyond that market. To be successful internationally Kao must add a third level to its organization (Exhibit 2), delegating marketing tasks to business units specifically geared towards targeting the desired foreign markets (European, North American, and South East Asian). This strategy has effective in their most successful foreign market, South East Asia, where they have made strong inroads with several products. Long-term Kao should have its sights set on replicating the successes it has seen in Japan on the worldwide stage. It has taken Kao 25 years to have a substantial presence in South East Asia. With the experience Kao has earned in this venture, and other international projects thus far, realistically this could be a 20-year plan.

To achieve their goal Kao should continue to move business level tasks to offices in the target markets. This is not an overnight change, but a gradual process beginning with the planned shift of research centers and continuing through the other marketing functions until all business level functions have been moved to local offices, leaving the Japanese head office to focus on corporate level strategies and Japanese operations. Bartlett and Ghoshal would call this a coordinated federation internationalization strategy and in this particular case the following competitive advantages are possible by improving local responsiveness:

• Marketing departments can better conduct localized research into customer needs, wants, and expectations to aid R&D departments by giving them a greater understanding of how to tailor products to foreign markets
• Advertising techniques can be more effectively employed to show how products meet the different customer needs of the particular region

The company's head office should continue to place a strong emphasis on communication, coordination, and the sharing of information between the three business units, as no doubt there will be possible synergies, namely:

• Reaping scale advantages in procurement of any additional resource inputs needed, R&D of products, and production of those products
• Capitalizing on location advantages of the resource inputs currently owned by Kao, the research specialists that the company already has trained, and manufacturing their products in their existing facilities where labour is cheaper and they have existing facilities
• Achieving resource relocation of raw material that are owned and produced by Kao, money that they have from their current revenues, and knowledge in the many areas of expertise that they have developed
• Attaining resource replication of their communication methods, and expertise in R&D, production, and marketing

Shifting business level tasks will require a change in top-level managerial thinking. Senior management will not be as active in operational matters but focused on corporate level strategy and formal planning, which is not the current norm at Kao nor is it consistent with Japanese management culture. For this reason it may be preferable to bring in some professional managers to help with the international transition process.

As the foreign business units grow and develop, top level management should allow the units to develop individual structures, being cognizant of differing norms between Asian and Western cultures. In Europe and North America companies are more likely to be mechanistic with strong hierarchies, while Asian companies are generally more organic and clan like in form. These structures are not just the norm in these markets, but are what workers expect and are used to and may be the most effective in these markets.

Kao's major risk is financial; if one business unit fails and they continue to pour money into it could jeopardize the viability of the entire company. The level of risk taken on by this expansion will correlate closely with the speed it is rolled out at. Kao could chose to fast track corporate changes and move to an immediate shift of business level strategy responsibility to local market headquarters, but this could be excessively risky. That being said moving too slowly will allow other companies to strengthen their position in the markets that are being targeted. Kao must strike a balance by gradually increasing the responsibility of the individual business units so that once they are competent at one task they are working towards other tasks. In this way Kao can minimize risk while growing at a good pace.

Realistically this plan is one of balance between gaining the advantages of local responsiveness (an added cost) while maintaining the benefits of being part of the larger organization. Top-level management will need to refocus their attention from running the day-to-day operations of the company to shaping the overall corporate strategy. This shift will require a lot of time, money and effort, and likely at times painful decisions will need to be made, but if internationalization is what Kao wants to achieve then the changes that have been proposed are necessary.