Thursday, November 25, 2010

No. 3: Three policies to tide over hardships (November 26, 2010)

Kuroeya was founded as the direct-managed store for lacquer products named Kuroenuri, a specialty in Wakayama Prefecture, in Tokyo in 1689. It became an affiliated company of the cotton wholesaler Kashiwaya (currently Kashiwabara Paper Shoji) in 1774. Since then, the Kashiwabara family, the family head of Kashiwaya, has been managing Kuroeya. Kashiwaya opened the Tokyo store in the Edo period and became one of the ideal merchants of those days, namely, a merchant who had the head office in Kyoto with an outlet in Tokyo.
The Kashiwabara family achieved a rapid growth in the 17th century through diversification. It did business in cotton, lacquer, and paper in three trade names, and established an affinity with one of the richest families in Kyoto. However, the business prosperity of the family did not last long because of the Reform of Kansei (1787-1793) conducted under the initiative of Sadanobu Matsudaira. Because of this reform that promoted the deflationary policy, rich families were badly affected. In addition, they increased bad debts because of the Tokugawa government’s policy of debt waiver and reduction or exemption of interest. In fact, the Kashiwabara family’s net asset decreased to one third.
Branching, Family law and store law, and Frugality
The Kashiwabara family paved a way to reconstruction through frugality and review of its assets. The three policies that save the family were “branching”, “family law and store law,” and “frugality.” The branching was to appoint an employee who worked for the store for long periods as director. Kashiwaya established the separation between capital and management. The head family in Kyoto controlled the capital, whereas the cadet family in Tokyo took care of management. And the cadet family in Tokyo had the function to keep close eyes on and sometimes dissuaded the head family in Kyoto whenever necessary. As a matter of fact, the cadet family greatly affected the rise and fall of the business.
The three business operations were reorganized into paper business and lacquer business after the Edo period. The Great Kanto Earthquake burnt down the head office and warehouse of the paper business, but the paper business recovered thanks to the support from Mitsubishi Paper Mills. Although the paper business was seriously damaged, the lacquer business grew dramatically after the earthquake thanks to the great demand for lacquer products. That is, the strength of the diversification worked rather well to the Kashiwabara family’s business. Ironically enough, the relatively highly-profit paper business covers the relatively low-profit lacquer business at present.
As this case shows, it is not too much to say that the three policies of branching, family law and store law, and frugality saved the Kashiwabara family in the past hardships. The three policies can be said to be today’s important factors of running business: well-organized promotion system, well-established company law, and well-managed expenditure plan.

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