Opinion / Op-Ed Contributors

Old Japanese firms offer vital lesson for younger ones

By Cai Hong (China Daily) Updated: 2015-05-26 07:46

Japanese people have one of the highest life expectancies in the world (84 years), according to the World Health Organization - about 80 years for men and 87 for women, to be precise. The island nation is also home to some 40 percent of the world's longest surviving businesses - the highest in the world. A 2011 survey by Tokyo Chamber of Commerce and Industry showed Japan had 21,666 businesses that were more than 100 years old, and 3,146 of them had been around for more than 200 years.

In fact, quite a few flourishing Japanese companies trace their origins to the 17th or 18th century. They include Mitsui, Sumitomo and the departmental store Daimaru. Mitsubishi and Suzuki, founded in the 19th century, are much younger in comparison.

What has enabled Japan's old-world companies to continue doing business this long?

My recent trip to Kyoto helped me find part of the answer. Kizaemon Tsukamoto, president of Kyoto-based Tsukaki Group, was proud to show me a scroll with a credo that encourages family members to accumulate "merit" to benefit their descendants. The sentence is from I Ching, or Book of Changes, an ancient Chinese masterpiece that says the cosmos is ever-changing yet harmonious. Today, the book has become a guide for success in many fields.

The scroll has been passed down to Tsukamoto, the sixth-generation keeper of the family-run business founded in 1867, from earlier generations. The company that started as a kimono maker has grown into a group dealing with garments, fur, jewelry and real estate.

A museum on the outskirt of Kyoto exhibits the credos of many business families, which have many values in common: frugality, diligence, honesty, restraint and sharing. These values are the basis of a strong corporate culture that unites the old companies, and they really live by the credos, instead of just highlighting them on their websites.

Such old companies are cohesive in their practice and have a strong sense of purpose and identity. By viewing their relationship with business partners and customers as something more than just exchange of goods and services for financial gains, such companies have built supportive networks that help them reap huge benefits in the long run. These networks have also ensured their success, not just survival, for a long time.

These companies believe in leanness and efficiency, which could be termed frugality. They are conservative in terms of financing and do not risk their capital gratuitously. They understand the meaning of money in an old-fashioned way and know the usefulness of having spare cash in the kitty. Having cash in hand gives them flexibility and independence of action. They can pursue options that their competitors can't. They can grasp opportunities without first having to convince third-party financiers of their attractiveness.

The conservative financial practices also mean these companies tend to be very profitable. Studies done years ago showed the average net profit of old Japanese companies was 5.5 percent while that of all Japanese companies was 2.7 percent.

In Tsukamoto's words, companies treat their employees, customers, suppliers and the local community well can live and thrive long. "Profitability is a necessary condition for their existence and a means to more important ends, but it is not the end in itself," says Yohei Nakanori, the fourth-generation president of Tsukiji Tama Sushi, a restaurant founded in 1924 in Tokyo.

Japan's century-old companies know the value of making their managerial practices a part of their DNA, and they cherish and protect it, as well as build upon it. Of course, some have not succeeded. Japanese temple builder Kongo Gumi, which was run by the founders' descendants since 578 AD, succumbed to excess debt and an unfavorable business climate in 2006.

The latest sentiment reading of small businesses has slumped to a two-year low as the weaker yen continues to weigh on smaller, domestic-orientated companies in Japan, while benefiting the nation's biggest exporters.

In this sense, the old companies could serve as a valuable for the younger ones.

The author is China Daily's Tokyo bureau chief.

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