But any serious Japan observer should not be surprised to see the country playing in a completely different league when it comes to longevity of its corporations. Japan is home to some of the oldest, continuously running businesses in the world.
Japanese companies dating back to the samurai era are so numerous that even a special term in the Japanese language exists: "Shinise", combining the characters for "old" and "store".
Just to name a few: Nishiyama Onsen Keiunkan is an over 1’300-year-old inn (Ryokan). Sudo Honke a 900- year- old sake brewer, spanning over 55 generations. Ichimonjiya Wasuke has been selling sweet treats in Kyoto since the year 1000. Osaka-based construction giant Takenaka was founded in 1610.
Momentarily, it is estimated that Japan is home to 50,000 businesses that are over 100 years old. And roughly 3,900 have been around for more than 200 years.
Interestingly, really ancient companies exhibit a few common characteristics:
Momentarily, it is estimated that Japan is home to 50,000 businesses that are over 100 years old. And roughly 3,900 have been around for more than 200 years.
Interestingly, really ancient companies exhibit a few common characteristics:
- Companies are local and family-run and often involved in basic human activities: Beverages, shipping, construction, weapons (=fighting)
- Companies emphasize on sustainability, rather than quick profit maximization
- Businesses worked hard to preserve their core competencies and reputation
- Companies are wary of growth, especially where it meant branching out into new areas; Keeping focused on the business where their expertise and reputation had been built
First, the companies are clustered in industries that never become obsolete/ disrupted. A prime example is Kongo Gumi founded 578 AD. It specialized in building Buddhist temples. That is a solid foundation in a nation known for its strong religious legacy. The company went bankrupt in 2006, taking on too much debt during the late 1980’s property bubble. But still it survived 1’400 years.
Furthermore, companies are family run. Japanese are extremely flexible when it comes to handing over the business affair to the next generation. Usually, the eldest son inherits all the patriarch’s wealth. But if he is incompetent or unwilling, sons-in-law would take on the family name and the job. Thus, it should not come as a surprise that most adoptees in Japan are not children but 25-to-30-year-old men.
Regarding building and expanding business ancient companies are extremely conservative and cautious. They only do so around core competencies. Kyoto-based Kimono manufacturer Hosoo Textiles, founded 1688, serves as a good example. Lately, it expanded into carbon fiber production for materials companies, where the core competency is the same as in manufacturing Kimonos: 3-D weaving.
Or take Nintendo, founded back in 1889. It started out as a maker of playing cards with various flower motives that are worth different points for the Japanese game “Hanafuda”. Although the company has become known for being an electronic gaming power house over time, the core competency is still the same: Creating fun.
Not only Japan’s ancient companies privilege longevity over the present moment, but rather corporate Japan in aggregate. Thus, Japan’s corporate sector is not very obsessed over quarterly business results and short- term stock price movements and therefore has a lot more persistence and long- term vision than western counterparts.
The same cannot be said for the great majority of U.S. companies. Facebook serves as a good example. Lifecycle wise, with its 17 years in existence, it should be in its adolescence. But in terms of spirit, values and visions it appears to find itself in the midst of a severe mid- life crisis.
A study by McKinsey confirms how short- breathed corporate America has become. It revealed that the average life-span of companies listed in Standard & Poor’s 500 is down to 18 years from 61 in 1958.
The key lesson that should be learned from ancient Japanese companies is the following: Management needs to create a corporation with not only great products and/ or services, but values and a purpose beyond just growth and monetary incentives. It needs to build a culture that makes a distinctive contribution to all of its stakeholders. That is what not only creates a corporation that will last, but also deserves to last.
Source:
Why you will probably live longer than most big companies (imd.org)
by Stephane Garelli
Japan's Oldest Businesses Have Survived for More Than 1,000 Years by Joe Pinsker (The Atlantic)
The End of a 1,400-Year-Old Business by James Olan Hutscheson (Bloomberg)
Keeping It in the Family by Emily Tamkin (Slate)
Keeping it in the family: Japan’s oldest companies have survived for 1,000 years
https://marcellus.in/story/why-so-many-of-the-worlds-oldest-companies-are-in-japan/ by Christy Gren (Industryleadersmagazin)
Jim Collins - Articles - The Secret of Enduring Greatness
Why Japan has the most old companies in the world (Business Insider)
There is a balance to be stuck between resiliency and efficiency. Neither extreme is usually beneficial in business.
ReplyDeleteMany small (and even large) publicly listed Japanese companies seem to exhibit a disregard for shareholder returns. Many Japanese net nets could, for example, increase their dividend payout ratio to 100% without posing any material threat to their existence in light on the enormous cash piles they sit on. Furthermore, a dividend yield rising from 2% to say 5% or 6% (which in many cases is quite sustainable) ought to result in a rise in stock price. If insiders had material holdings they would stand to benefit alongside long suffering shareholders.
Resiliency with a disregard for efficiency is destructive in its own way.
Totally, agree. For many Japanese companies it is possible to material increase pay- out without negative effects on viability.
ReplyDeleteI will be glad to know your thoughts about nintendo. Price worth a try?
ReplyDeleteNo Opinion on Nintendo Price/ Value wise.
DeleteIt is a great company though and was a net- net stock when i mentioned it on the blog.
https://undervaluedjapan.blogspot.com/2013/01/the-sleeping-giant-nintendo-jp7974.html