1. May. 15, 2013
Managing Across Borders
-The penetration strategy of
KAWAI to Russian market-

2. #1 Kawai profile
Main Products
Grand Piano
Electronic Organ
Upright (Vertical)Piano
Church Organ
Digital Piano
Education

3. #1 Kawai profile
Operation
Head Quarter
Sales
Music School
Seasonal
Tuning
- Effective control of sales with
data
- Gripping and growing
consumers in Music School
- Keeping connection with
customers through quality
control by Seasonal Tuning
- Promotion by “Kawai Artists”

4. #1 Kawai profile
Other
0.2 IT
0% 4.1
7%
FY2012 Piano & 22.8B JPY, areal distribution
FY2012 Total Sales 58.1B JPY
Other, 1.68, 7%
Erectric Parts
9.5
16%
[分類名] [値]
Musical
Instruments
26.5
46%
Japan, 6.01, 26%
China, 5.39, 24%
North
America, 5.94, 26
%
Education
17.8
31%
Japan
2011
2012
2013
expected
North America
2011
2012
2013
expected
Europe
2011
2012
2013
expected
Piano Qty D.Piano Qty
Compared with mature Japanese & American Market, potential market exists in Europe.
(0.1B JPY)

5. #2 An appropriate country
in which to operate
An appropriate country in which to operate
Top-end Piano
Since 2012
Grand Piano
Upright Piano
Digital Piano
Mikhail Vasilievich Pletnev
International Tchaikovsky
Competition, Gold Medalist
Top-end “SK-EX” user
Empower the brand
nationally & globally

6. #2 An appropriate country
in which to operate
Buyer Power：Consumer segmentation in Russia
Source: Himoto, Shingo and Nobuo Okubo. “Resurgence of Russia economy and boom of consumption” Creation of Intelligent asset March 2007: 16-17. Print
Segmentation of customers
Urban rich
28 million
Attribution
Population
Poverty
57 million
Semi-middle
57 million
Monthly salary (USD)
Below 120
120 to 500
500 to 1000
More than 10,000
Occupation
No fixed income
Farmer,
civil servant
Well paid worker
Company owner, Asset holder
Residence(Type)
Barrack
Panel house
Urban
condominium
Car
Food supplier
Recreation
Second hand
Street vendor
Neighborhood
Home-made car
Local retailer
Domestic travel
Expensive imported car
Expensive food shop
Travel expensive resort area
Education of children
Vocational training school
National university
than 1000 USD
Imported car
Super market
Travel
neighborhood
countries
National university till
4000 USD
Internet
N/A
Internet cafe
Access in office
Access at home
Top-end Piano
Since 2012
Grand Piano
Upright Piano
Digital Piano
less
Super rich
7 million
style
Condominium & more than two
resort villa
Domestic top school or study
abroad

7. #3 Our planned entry strategy
Entry Strategy
Kawai’s business model requires well-trained
business people with long-term perspective.
Sales
Music School
Seasonal
Tuning

8. #4 The critical operational factors
Environment Analysis
Critical Issues in Macro Environment
POLITICAL
• Administrative barriers and Corruption
• Excessive and ineffective tax burden
ECONOMIC
• Average income in Moscow: $1,500/m
• GDP growth: +4%y/y (2010-13)
SOCIAL
• Lack of qualified workforce
• Short-range plans
LEGAL
• Inefficient property rights’ protection
• Import levy: 15% of customs cost

9. #4 The critical operational factors
Environment Analysis
3C to KSF in microenvironment
CUSTOMER
• Potential needs in Moscow, St. Petersburg: 100MUSD/yr
• Demand of acoustic piano: 25,000-60,000/yr
COMPETITOR
• Used < Russian < Chinese < Japanese < Czech < German
COMPANY
KSF
• Conservative business structure
• Follower after YAMAHA with similar business model
• Differentiation strategy against YAMAHA
• Clear channel strategy in Moscow, St. Petersburg

10. #5 Cultural profile of Russia
Russia – History Brief
862: Viking Rurik came to Russia and founded
1917: Russian revolution
-The fall of the Romanov dynasty and
establishing Soviet union
-Intellectuals and engineers are exiled out from
Russia
1991: Failure of Soviet union
-The establishment of Russian federation, and
independence of the former Soviet countries
-Transition of the socialist economy to market
economy
History of the fight against foreign enemies
Peasant society
Harsh climatic conditions and vast land

11. #5 Cultural profile of Russia
Russia – Hofstede 5-D Model

12. #5 Cultural profile of Russia
Russia – Hofstede 5-D Model
Power
Distance
• Russia, scoring 93, is among the 10% of the most power distant societies in the
world.
• This is underlined by the fact that the largest country in the world is extremely
centralized: 2/3 of all foreign investments go into Moscow where also 80% of
all financial potential is concentrated.
• The huge discrepancy between the less and the more powerful people leads to
a great importance of status symbols. Behavior has to reflect and represent the
status roles in all areas of business interactions: be it visits, negotiations or
cooperation; the approach should be top-down and provide clear mandates for
any task.
Individu
alism
• If Russians plan to go out with their friends they would literally say “We with
friends” instead of “I and my friends”, if they talk about brothers and sisters it
may well be cousins, so a lower score of 39 even finds its manifestations in the
language.
• Family, friends and not seldom the neighborhood are extremely important to
get along with everyday life’s challenges. Relationships are crucial in obtaining
information, getting introduced or successful negotiations.
• They need to be personal, authentic and trustful before one can focus on tasks
and build on a careful to the recipient, rather implicit communication style.

13. #5 Cultural profile of Russia
Russia – Hofstede 5-D Model
Masculinity
Femininity
• Russia’s relatively low score of 36 may surprise with regard to its preference for
status symbols, but these are in Russia related to the high Power Distance.
• At second glance one can see, that Russians at workplace as well as when
meeting a stranger rather understate their personal
achievements, contributions or capacities.
• They talk modestly about themselves and scientists, researchers or doctors are
most often expected to live on a very modest standard of living.
• Dominant behaviour might be accepted when it comes from the boss, but is
not appreciated among peers.
Uncertainty
Avoidance
• Scoring 95 Russians feel very much threatened by ambiguous situations, as well
as they have established one of the most complex bureaucracies in the world.
• Presentations are either not prepared, e.g. when negotiations are being started
and the focus is on the relationship building, or extremely detailed and well
prepared. Also detailed planning and briefing is very common.
• Russians prefer to have context and background information.
• As long as Russians interact with people considered to be strangers they appear
very formal and distant. At the same time formality is used as a sign of respect.
Long term
orientation
• No score available for Russia

14. #5 Cultural profile of Russia
Environment + History => Russian culture / value
Collectivism
• Communal spirit - throughout its notable history, Russia has assumed a strong communal
spirit that is still reflected in Russian business practices today.
• Severe climatic conditions – cooperation and collaboration, rather than competition, have
been vital for survival.
• 'mirs' or 'obschina‘ - dates back to the peasant farmers, who lived in agricultural villages
worked together in an organized and self-managed community.
Egalitarianism
• Social philosophy that supports the removal of inequity and promotes an equal distribution of
benefits.
• An important strategies of equality, reciprocity and mutual advantage
• Status conscious and believe in co-equals
• A "deal" is often thought of from the perspective of equally shared benefit.
Dusha
• The famous and enigmatic Russian 'dusha' or 'soul' remains central to everyday Russian
behavior

15. #5 Cultural profile of Russia
Russian culture / value => Russian Business Practice
Working practice in Russia
• They may be late, but they will expect you to be punctual
• Unsigned documents does not have faith
Structure and hierarchy in Russian companies
• Decision makers higher up have authority over their subordinates
• Showing respect for seniority and recognizing the hierarchical structure
Working relationships in Russia
• Personal and informal contact is a central part in doing business in Russia
• Physical contact like a simple hand on the arm is a positive sign. The notion of social
space is much closer in Russia
• In conflict, try to avoid taking an official stance and remember that Russians are 'people
orientated' and will respond to a more personal approach
• Presentations should be straightforward and comprehensible
• Concerns are discussed in an informal environment
• Final negotiations will be conducted in the office

16. #6 Organization Chart
KAWAI International
-Division StructureFinance
America
Human Resource
Chief Executive
Officer
Domestic Sales
and Marketing*
International
division
Australia
UK
Indonesia
Production
Shanghai
*Assign the head of domestic marketing the role
of international marketing and sales
Russia

17. #7 leadership/motivational system
The concept for organization chart of KAWAI
Localization
A local manager should be
assigned to Russian market and
have the responsibility for entire
of strategy.
Assign the head of domestic
marketing division to the role of
international marketing and
sales as a double-hat manager.
Collaboration
Limitation
Market is limited at the first stage.
Keep the factory in Japan before
Russian market is matured.

18. #7 leadership/motivational system
Leadership and Motivation system
High
High
Uncertainty
avoidance
Power
distance
100
90
80
70
60
50
40
30
20
10
0
Russia
Japan
Individualis
m
Low
Masculinity
Hofstede’s five dimensions
Low

19. #7 leadership/motivational system
Leadership and Motivation system
America
Domestic Sales and
Marketing*
Australia
UK
International division
Indonesia
Shanghai
Russia
Strong Boss-Subordinates
system
Set the clear short-term goals
to groups (not to individuals)

20. #8 Any special control issues
Control Issues
What issues?
How to deal with
Language &
Culture
• Russian - Based on Cyrillic and
difficult to acquire
• Different business customs - Not
much trust on paper contracts, lack
of long-term views, etc.
• Authoritarian, relationship-oriented,
avoid responsibility and risk, etc.
• Take necessary time to Identify
& establish relationship with
local partners and make
business alliances
• Apply “Planning, Persistence,
Patience”
• Hire qualified local people
Geographic
Distance
• Moscow is 7,500 km away from
Tokyo => Not easy for its employees
to come and go
• Vast country to cover/manage
• Dispatch qualified employees
• Keep close communication (biz
trip, video conferences)
• Don’t rush
Legal,
Security,
Currency
• Property rights, tax regulations, legal
systems are unclear
• Corruption, bribery, political
uncertainty
• Currency fluctuations
• Become sensitive and
knowledgeable about local
practice via local
professionals/partners
• Set different expectations
• USD transactions

21. #9 The concerns of the host country
What are concerns?
How to deal with
Host Country Environmental
Issues
• Undeveloped legal/tax systems
• Uncertainty of collecting
receivables
• Political instability
• Set different expectations
• local credit expert to avoid bad A/R
• Good relationship with local lawyer
in case of overdue receivable
• Do not take too much risk at once,
be cautious for investment
• Always keep uncertainty in mind
Local
Community Long-term
cooperative
relationship
• Hire, train, retain local
employees and piano instructors
• Local sales/business
development
• Establish local network
• Introducing Kawai’s Education
business model
• Compete with YAMAHA Piano
• Dispatch qualified employees to
start the business
• Instillation of Kawai’s mission and
goals/values.
• High quality, competitive
classroom management
• First manage to get into prestigious
universities of music (make use of
“authority”) => students from
wealthy families => mid class (from
top to bottom)

22. Conclusion
Sales
Music School
Seasonal
Tuning

23. Backup

24. Basic economic facts-2012
Currency: Ruble(RUB);31Ruble=1USDollar (2012)
GDP PPP: 2.4 US$ tn (2011)
+4.3% growth (2011)
Compare: Japan 4,4 US$ tn (2011)
GDPpercapitaPPP: $16,735(2011)
Compare: Japan 34,748 US$ (2011)
Unemployment rate: 5.3%(Q32012)
Inflation rate: 6.1%(2011), 6.5%(Oct12/Oct11)

28. #2 Decide on an appropriate country in which to operate, and give
your rationale for this choice.
Degree of Rivalry: KAWAI Products have enough impact on quality/performance in Russia
http://www.pianobuyer.com/fall12/44.html

29. #2 Decide on an appropriate country in which to operate, and give
your rationale for this choice.
Degree of Rivalry: KAWAI Products have enough impact on quality/performance in Russia
“Lia” and “Krasny
Octiabr” & Second
hands In Russia as
entry models
http://www.pianobuyer.com/fall12/44.html

30. •
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Market of Piano in Russia
After a serious decline the market of piano in Russia experiences a period of its revival. Due to the absence of government orders the majority of the
Russian manufacturers of pianos have vanished. Only two manufacturers of pianos and grand pianos – piano factory “Lira” (Moscow) and “Krasny
Oktiabr” (Saint-Petersburg) – has left out of 20 enterprises which manufactured 120 thous. pianos and grand pianos per year.
In Russia, a half of the market of musical instrument – which, following some experts’ estimates, consists nearly two thousand instruments per year –
is controlled by “Lira”. For comparison, in 1990 “Lira” alone manufactured 7000 items of piano assuming that the market had major manufacturers
from Belarus and the Ukraine operating there that time.
However, serious prerequisites for the situation to improve have appeared recently. The government pays greater attention to pitiable conditions of
musical instruments in schools and boosts its orders. For instance, “Lira” plans to increase its pianos sales to 3000 items per year due to municipal
order for Moscow music schools that haven’t purchased new instruments for many years.
One more reason able to improve the situation on the piano market is presented by new developments for piano models such as “Mozart”, “Richter”
and “Tchaikovsky”. For their output the production was profoundly updated. As early as in 1997 “Lira” factory produced a prosperous instrument –
grand piano of “Moskva” – which obtained a sufficient amount of orders. For the present moment the factory prepared a new model of piano of
“Mozart” that combines the best technical achievements and costs cheaper than its foreign counterparts. The piano uses the Czech mechanics of
high quality of “DETOA” and the best Chinese keyboard of “ORIENT”. A body of “Mozart” is produced using new technologies; it has attractive
appearance, good design decisions, magnificent acoustic engineering and concert sounding and its cost is half as much as the one of similar
instruments of other manufacturers.
The new model was worthily appreciated by foreign experts. The piano of “Mozart” created a furor at the exhibition in Frankfurt am Main. Due to
this fact nearly 50% of the factory’s production is exported not only to traditional countries as Iraq, Israel, and Canada but also to Italy, Spain, Greece
and Eastern Europe countries.
The arrival of new models of the pianos of the Russian manufacturers will considerably challenge the Czech instruments which have traditionally
occupied the leading positions on the European piano market. The main competitive advantage of the Russian manufacturers is their price. A good
Czech piano has a price starting from 4500 euros, while the Russian one of the similar quality – from 2000 euros.
According to experts estimate, nowadays, Russia sells 25-60 thous. of acoustic pianos per year. It makes nearly 60 mln. USD in terms of value. Only
1% of the market belongs to the Russian manufacturers. In 2007, Russian factories produced 1.7 thous. instruments, with almost a half of them being
exported. The market has been steadily filled with the products of the world leading manufacturers made in China in recent years.
Nowadays, a major part of pianos is acquired on the second hand market. The Russian manufacturers compete not only with the Chinese and the
Europeans but also with the second hand market with its sufficiently large turnover. The main reasons for this are unwillingness of the Russians to
pay large sums for an instrument of high quality and a diffused opinion that Russia doesn’t produce new instruments of high quality.
However, instruments of the second hand market due to their age are of low quality. According to experts, only 2% of the instruments of the second
hand market are properly functioning, without battered hitch-pins and cracked string-plates.
The range of pianos in Russian stores is mainly presented by import products from Japan, the Czech Republic, Germany, China at rather high price.
The simplest Japanese pianos cost from 3000 USD, the Czech ones of “Petrof” – from 4000 USD, the German pianos of “Seiler”, “Bechstein”
and “Zimmerman” – from 7000 USD to 15000 USD, the Chinese ones – 1500-2000 USD. As average price for piano of the Russian manufacturers is
50-60 thous. RUB, a second hand one – 5-15 thous. RUB.
Customs legislation of the Russian Federation protects local manufacturers. There are no restrictions for import of musical
instruments, however, there exist import levy at the rate of 15% of customs cost.
According to experts, a potential market capacity for pianos and grand pianos in Moscow and Saint-Petersburg alone makes more than 100 mln. USD
per year.
Regional needs of the population (private individuals, music schools) are satisfied by stores specializing in sales of musical equipment. Receiving an
order and a 100% advanced payment a selling organization finds the manufacturers of instruments and delivers it to a final customer.

31. #8 Explain any special control issues that concern
you for this overseas operation. How do you plan to deal with them?
Control Issues
• Language & cultural differences
– Russian language is based on Cyrillic and difficult to master.
– Business practice is different from that of Western
– Cultural characteristic is relationship-oriented, hierarchical, and avoiding
responsibility ⇒ Business practice does not much with global standard.
• Geographic distance between the subsidiary and the
headquarters
– The distance between Tokyo and Moscow is 7,500 Km.
– National territory is vast and difficult to control.
• Legal & Security
– Property rights and rule of the game is not clear.
• Currency exchange rate fluctuations
– Russian Ruble has difficulty in terms of liquidity and overseas remittance.

32. #9 Identify the concerns of the host country and the local
community regarding your operations there. What plans do you have to
deal with their concerns and to ensure a long-term cooperative
relationship?
Environmental Challenges (suggested by JETRO)
• Undeveloped legal/tax systems
• Uncertainty of collecting receivables
• Political instability
Operational Challenges
• Hire, train, retain local instructors (*culture, language issues as well)
• Local sales/business development (making local network, connections
with government officials, politicians, influential people)
• Introduction/expansion of “piano class” business model (What do middleclass Russians react to it?)
• Competitors (e.g., YAMAHA Piano)

33. Actions to Take in Their Entry Strategy
To deal with the Control Issues:
• Set up a representative office first => Local partnership establishment / Market
analysis / Strategy Planning => Alliance / Joint Venture => Subsidiary
• Stick with “3P” => Planning, Persistence, Patience!
• Frequent communication with local staff (video conference system, Skype, etc.)
and business trips are necessary to be on top of the ongoing issues.
• Be sensitive with local practice, expect things to be delayed or pushed back by
bureaucratic procedures
• Make payment terms in USD or use settlement bank which has good relationship
with Russian leading banks.
To deal with Environmental Issues:
To deal with the Operation Issues:
• Hire local instructors
• Train and dispatch Japanese instructors (Russian/English speaking) and have them
work with local instructors
• Set up a representative office and dispatch people and perform “3P” (for building
partnerships and connections)