No. 9: The ability to integrate production, distribution, and marketing is the key to prosperity (December 1, 2011)

Itami city in Hyogo Prefecture is famous as the birthplace of refined sake, or simply sake. Before the debut of sake, only white murky unrefined sake was available. Sake was born in Itami city thanks to technological innovation, and it got a burst of popularity in Edo (currently Tokyo). Founded as a drug seller in Itami city in 1550, Konishi Brewing is now famous nationwide for its Shirayuki (White snow) brand sake. Konishi’s sake got a burst of popularity in Edo despite its high price, and the family head decided to focus on sake brewery in 1612, withdrawing from the drug sales business completely.

However, Itami’s prosperity did not last long because Kobe also succeeded in producing sake. Kobe was in a better position than Itami to ship sake to Edo because it is a port city. Actually, sake brewed in Kobe took the Edo market by storm, replacing Konishi. Konishi formulated various measures to overcome the hard times. It opened a sake wholesaler in Edo in 1694 to expand the nation’s largest market even more seriously. Actually, it is the first sake brewery that entered into the wholesaling business. At the same time, it started the transportation business and established a business model that covers production, distribution, and marketing. Because Konishi’s rivals had to pay margins to such middlemen as distributors and wholesalers, Konishi successfully maintained competitive edge and secured a high profit margin even in the panicky selling. And it loaned the accumulated capital to lords and retailers of the shogun across the country.

In the Meiji Restoration in 1869, the head of the 11th generation started the banking business and railway construction business in addition to building two sake-brewing plants in China. Konishi started to market Belgium beer in 1988. The head of the 15th generation became president in 1991. Under his leadership, Konishi is aggressively expanding the beer business. Beer sales currently account for only 10% of Konishi’s total sales, but it is trying rather hard to increase beer sales. Diversifying into different business fields is accompanied by risks, but Konishi tries to develop a new field without sacrificing the spirit of protecting the tradition. The principle of fluidity and immutability always exists in the sprint of Konishi. 

No. 8: Ways to make long-established companies survive (September 7, 2011)

About 1,800 companies are listed in the first section of the Tokyo Stock Exchange. Matsui Construction founded in 1586 was the oldest among them. The first generation took part in the construction of a castle in Toyama Prefecture. This was the initiation of Matsui Construction. The 15th generation listed his company in the Tokyo Stock Exchange in 1961. His decision was quite a touch decision, but it increased the presence of his company quite rapidly. In exchange for his decision, however, the founding family now owns only 6% of the total shares held of the company. It is a critical decision for the founding family whether or not it should be listed for further growth. Founding families of long-established companies need to make this critical decision, like it or not.

Okaya & Co., founded by the first generation in 1696 as cutlery in the castle town of Nagoya, was listed in the Nagoya Stock Exchange in 1995. The 13th generation who obtained a degree from the graduate school of an American university joined the company after having worked for Nippon Steel. His father was killed in a plane accident in 1958 and his uncle succeeded him. The 15th generation succeeded his uncle in 1990. He elaborated his plan to list the company since the inauguration because he wished to renew the atmosphere that prevailed with the family-oriented management without metabolism.

His courageous decision made his company prosperous greatly. The number of subsidiaries increased from 23 to 57, and sales increased more than 60% since the listing to nearly one trillion yen. With the rapid growth of the company, the share owned by the founding family decreased accordingly. The 15th generation has merely 5% of all the total shares held now. Okaya shows a way how to expand the business of the founding family, and Higeta Shoyu (Higeta Soy Sauce) gives another way.

The first generation founded Higeta as a soy sauce producer in Chiba Prefecture in 1616. Later, the founding family started the wholesale business in Edo (Tokyo) in 1716 to increase the presence of the Higeta brand soy sauce. In the Kanto area, soy sauce producers underwent a fierce competition, and they were restructured into three major brands of Kikkoman, Yamasa, and Higeta. To survive the tough competition, Higeta’s founding family decided to sell part of Higeta’s shares and become affiliated with Kikkoman. The head family survived the wholesale business in alliance with Kokubu that is the biggest food distributor in Japan to keep the Higeta brand alive.

There must be several ways to make a traditional brand survive in today’s turbulent business trends. It is not a question what of them is the best. What is important is the strong determination to make the long tradition alive forever.

No. 7: Profits come from the prosperous co-existence with customers (March 26, 2011)

Ohmi, which is currently Shiga Prefecture, was famous for Ohmi shonin (Ohmi merchants) back in the Edo Period (1603-1867). Even today, Ohmi merchants mean diligence and patience. They diligently expanded business and increased presence in the market. Such famous companies as Takeda Pharmaceutical and Takashimaya Department Store originate from Ohmi. Tonoyo is also an Ohmi-born company. Founded in 1700, it currently enjoys an established reputation as a trading company handling apparel products including Japanese kimono.

The family was originally a pack peddler selling linen cloth and silken threads. At the beginning of the 19th century, it opened a store in Kyoto and Osaka and grew to be one of the influential merchants in the market. Many Daimyos (Clans) suffered from financial crisis toward the end of Edo Period, and they borrowed money from affluent merchants. Lending money to clans was truly dangerous because merchants were forced to write off their loans in most cases. Most merchants, however, gave in to authority and reluctantly lent money to clans for fear of sanctions. One brave merchant existed, and he turned down the request from a clan for a loan twice.

It was the fifth generation of this family. He said to the clam without hesitation that he was mentally prepared for a sanction because he turned down the request for a loan twice, but strongly and proudly alleged that if he had been asked to discontinue business with the clan, all merchants would get fed up with business with the clan and ultimately would ruin the clan. The austerity epitomized by this story allows this company to prosper for more than 310 years.

This family has the precept that profits come from the prosperous co-existence with customers. That is, the business relations that ask one of the two parties to accept compulsion of the other will not last long. The request from the clan was exactly the one that the family had to turn down by any means. The two parties are usually joined by social contribution that means the efforts to do what is good for society. That is, the precept means that everything is fine if each of the two parties and society are fine, and this was the knowledge widely shared by Ohmi merchants.

The family was very innovative, too. It created several rulebooks to govern the family, its collateral families, and employees to prevent them from growing arrogant. In particular, it placed higher importance on the merit system than the seniority system. It asked all employees including managers to write a resignation every year to maintain an uncompromising stance in the relations between the family and employees.

Tonoyo currently has three plants in China and plans to build another one in China. As globalization develops, Japanese companies have to establish solid and longstanding business relations with foreign companies, and it is vital to locate reliable parties and collaborate with them. For this purpose, the family seems to place the highest importance on the precept that profits come from the prosperous co-existence with customers.

No. 6: Improve the environment surrounding your business, first (March 19, 2011)

Forestry needs constant efforts for generations. You cannot expect short-term sales and profits, and you have to keep thinking about innovation. Otherwise, competitors equipped with new technology will surpass you, and it takes you much time to catch up with them. Hayami Forest is the company that has never stopped making innovations in forestry for the past more than 200 years. The concept that drives this company is “building new mountains.” That is, it places more importance on the environment that surrounds its business than on pursuing for quick business return.

Hayami Forest was founded in 1790 when the first generation started business in forestry and seafood. The Hayami family was originally one of the high-ranking officials of the Tokugawa family in Kishu (currently Mie Prefecture). The Tokugawa family that ruled Japan in the Edo period (1603-1867) had three collateral families. They were located in Owari (currently Aichi Prefecture), Mito (currently Ibaraki Prefecture), and Kishu (currently in Mie Prefecture). The company was founded and is headquartered in Mie Prefecture next to Aichi Prefecture famous for Toyota Motor.

The first generation made a fortune in the seafood business and invested heavily in forestry. Because he increased the number of mountains and forests, the Hayami family currently owns a total of 1,070 hectares (about 2,650 acres), 80% of which are coniferous forests. And 99% of the coniferous forests are Japanese cypress. The area where this company owns forests has an annual precipitation of 4,200 mm as compared with Tokyo’s 1,500 mm. Therefore, dense planting was traditionally dominant in this area because of the pluvial climate; planting 10,000 trees per hectare – more than three times as many trees as in other areas – was widespread. Dense planting, however, makes it hard for the bottom weeds to grow, resulting in washouts of soil and nutrition for trees in times of heavy rain.

The eighth generation succeeded the seventh generation in 1943. He was a great reader, and he studied forest management by himself. He was brave enough to discontinue dense planting and adopt the concept of building beautiful mountains instead of pursuing only for high return. The slogan this company invented was “Manage light to make a forest grow rich by itself.” Increased tree thinning enriched the soil and increased the amount of plants. Each of Hayami’s artificial forests has 243 kinds of plants, whereas a standard protected forest has 185 kinds of plants. In addition, the company started to improve the forest roads and strip roads in 1961. At present, the company has roads with a length of 45 km inside its forests, which means a forest road of 45 m per one hectare. The roads that stretched in a finely meshed pattern contributed to increasing productivity because the efficiency of operation of vehicles and heavy machines was improved greatly.

Increasing wood imports depreciated the price of Japanese cypress considerably to a quarter during the past 30-40 years. To cope with the increase of inexpensive import woods, the company introduced state-of-the-art silviculture equipment to develop its own nursery plants. The concept that this company has been cherishing for more than 200 years gave this company the honor of the first Japanese company that acquired the certification of the Forest Stewardship Council (FSC) headquartered in Germany in 2000. It is noteworthy that this company has focuses on the factors and environment that develop the business in the long run and pursued the concept to make the mountains beautiful instead of seeking for quick return from the sales of woods.

No. 5: The greatest asset of a company (March 17, 2011)

Takeda Pharmaceutical is the runaway leader of the Japanese pharmaceutical industry. Takeda completed a new research base in Kanagawa Prefecture on February 19, 2011. The new research base is one of world’s largest research bases in the pharmaceutical industry, and 1,200 researchers will move to this base within the year. Japanese leading pharmaceutical companies including Takeda mostly originate from drug sellers authorized by the Tokugawa government in the Edo Period (1603-1867). Takeda is not the oldest, but it is Takeda that introduced western drugs to the Japanese market for the first time in the Meiji Period. Back then, drugs were Japanese and Chinese drugs in Japan. The first generation opened business in Osaka in 1781 and steadily expand sales, and the second generation increased the presence in the drug selling business dramatically.

In the Edo Period, business ethics did not allow drug sellers to take customers from competitors. Neither the concept nor the method of advertising existed. That is, there was no way left but to wait for buyers to come in. Takeda needed something to characterize it because it was not the oldest. It selected information as a means to differentiate it from others. It exerted much energy on information collection and kept customers informed of the latest market conditions. Takeda’s efforts produced fruits. It grew famous among customers, both existing and prospective, that they were able to get not only products but also various kinds of information from Takeda. Thereafter, it became Takeda’s DNA to get precise and high quality information to keep customers informed of the latest information on the market and industry.

The import drug market grew steadily, and the fifth generation started drug production to make his company an integrated pharmaceutical company. It can safely be said that the courageous decision made by the fifth generation built up a foundation of further growth. What should be noted here is that he established the laboratory and product test division in the newly-built manufacturing plant. Takeda’s moves agreed with Japan’s decision to strengthen its heavy and chemical industry to become independent of foreign countries. Import of western drugs suddenly stopped because the First World War broke out in Europe in 1914. Discontinued import affected drug sellers very favorably because the prices of western drugs soared rapidly and tremendously, allowing them to get enormous profits.

With the windfall profits, some drug sellers branched out into business fields totally unrelated to the main business. Some founded a steamship line, and some started candy production. However, Takeda invested the profits only in pharmaceutical production facilities without paying attention to other business fields. The new plant was completed in 1915, and it was then a very advance production plant with state-of-the-art equipment. Takeda subsequently invested actively in R&D, and grew to be a modern pharmaceutical company with three divisions of production, R&D, and product testing. Now, Takeda is the leading pharmaceutical company that Japan can boast to the world. The new research base makes it clear that Takeda’s DNA has remained unchanged.

The Takeda’s case shows a lesson that a company should not forget its DNA. You have to keep in mind that the DNA instilled and cultured in your company for a long period is the greatest asset and the important criterion by which your customers evaluate your company. Think about GM. Is the financial and credit business the DNA left by the great Alfred Sloan?