[Smart Economics] The Secret of Japan’s Long-Lived Companies

More than 100 Years

Japan

About 20,000 companies… Long-lived firms are proof of competition and innovation

Founded in 1967, Hyundai Motor had become the world’s 10th-largest automaker as of 2020. When Chairman Chung Ju-yung created Hyundai Motor, few foreigners had even heard the company’s name. But now cars bearing the Hyundai emblem run through streets all over the world. Hyundai Motor sold a total of 3,743,514 vehicles in 2020 alone. Of those, 787,854 were sold domestically. The remaining 2,955,660 units were all sold overseas. Over roughly 50 years, Hyundai Motor developed through innovation and survived numerous competitive battles to become what it is today. Considering that automakers with much longer histories than Hyundai Motor have disappeared helplessly, this is a remarkable achievement. The fact that companies abroad benchmark Hyundai Motor is further proof that it has become a global powerhouse.

The United States and Japan, where many long-lived firms exist

Among the Global 2000 companies selected by Forbes in 2013, the country with the largest number of long-lived firms was unquestionably the United States. The U.S. had as many as 152 companies that were more than 100 years old and 277 companies that were more than 50 years old. The country that followed was not Europe or China, but Japan. Japan had 45 companies that were more than 100 years old and 205 companies that were more than 50 years old. Korea also had 2 companies more than 100 years old and 27 companies more than 50 years old.

Other countries also have many companies that are more than 150 or even 200 years old. The United States has 33 companies older than 150 years and 6 companies older than 200 years. Japan has 3 and 1, respectively. The number of such long-lived firms clearly shows a country’s competitiveness.

The United States’ standing in the world economy was possible because of the success of its companies. Japan, once the world’s second-largest economy, likewise achieved that status through both economic growth and corporate growth. A close look at long-lived firms shows that many possess strong innovative capacity. To operate over a long period, a company must continue to grow even when its industry stagnates. When an industry enters decline, a firm must pioneer new industrial areas, which means that only companies capable of innovation in technology, management, and other dimensions can become long-lived firms.

The relationship between competitiveness and long-lived firms is not limited to large corporations. In neighboring Japan, there are so many large and small long-lived businesses that it could be called a paradise of long-lived firms. According to a 2010 survey by Teikoku Databank, Japan had as many as 22,200 companies that were more than 100 years old. More than 98% of them were small and medium-sized enterprises. Combined with Japan’s tradition of passing down family businesses, this has produced an enormous number of long-lived firms.

Japan’s oldest company is said to be Kongo Gumi, a wooden construction company that has continued for more than 1,400 years. Looking at the sectors in which Japan’s long-lived firms operate, retail and manufacturing are especially prominent, accounting for more than 50% of them. Shoichi Kubota, a professor at Hosei University in Japan, identified as a key characteristic of long-lived firms their ability to adapt to the times based on a clear corporate philosophy and management principles. He also said that many long-lived firms are run by successors through business succession because that is the best way to carry on the company’s philosophy.

Izumiriki Seisakusho in Sakai, Japan, is famous for its knives. In particular, the Sakai Toji brand enjoys global recognition. Founded in 1805, Izumiriki Seisakusho has a history of more than 200 years and is now operated by the 7th generation of the founder’s family. The quality of knives made by Izumiriki Seisakusho is among the best in the world. When the company first opened, it mainly produced hoes and plows. Later, however, it expanded into knife-making and grew by building a reputation for “knives used by craftsmen.” This was the result of both a tradition carried on over seven generations and the expansion of its business areas in line with the needs of each era. Moreover, to meet demand for the kinds of knives sought in a new age, the company continuously strove to produce many different kinds of knives using new materials. In the digital era, it also focused on promotion. To raise awareness of the Izumiriki name, it sponsored products for a famous Japanese TV cooking show. It also engaged in a variety of promotional efforts, including attending cooking competitions around the world. The secret to how Izumiriki Seisakusho survived for more than 200 years was that it respected the tradition of the family business while continuously pursuing management innovation.

Kikkoman, one of the world’s most famous soy sauce brands, is also a long-lived Japanese company. Beginning as a rural soy sauce company in 1630, Kikkoman has a history of more than 380 years. From its founding to the present, it has been run by the founder’s family, and the secret to its longevity lies in never ceasing to innovate in pursuit of the best products. Kikkoman made relentless efforts to turn traditional Japanese soy sauce into a global seasoning. As a result of those efforts, it achieved the remarkable feat of exporting soy sauce overseas in 1868. Even afterward, it never stopped innovating in management, and today it has become one of the world’s largest food companies, selling more than 2,000 products in over 100 countries.

The secret of long-lived firms: inherited tradition and innovation suited to the times

Many of Japan’s long-lived firms are family businesses handed down from previous generations. They preserve tradition through a combination of a corporate philosophy imbued with the founder’s entrepreneurial spirit and the family’s convictions. At the same time, they survived competition and became long-lived firms because, based on the managerial resources inherited from previous generations, they never stopped making new attempts such as changing business formats to fit the times and entering new industries and new markets.

In family succession firms, parents’ desire to pass the business on to their descendants in sound managerial condition became the driving force behind business development. The Japanese government also supports such long-lived firms. When a business is transferred among family members, the Japanese government supports the continuation of corporate tradition in various ways, including deferrals of inheritance and gift taxes.

Japan’s long-lived firms offer significant implications for Korea. Even while valuing tradition and respecting family businesses, these companies sustained themselves through constant innovation. The state regarded family succession as a second founding and did not hesitate to provide tax support. In other words, long-lived firms are a history created by an owner’s mindset, craftsmanship, and a business-friendly culture.

△ Please remember

Japan is said to have as many as 22,200 companies that are more than 100 years old. Many of Japan’s long-lived firms are family businesses handed down from previous generations. While valuing tradition and respecting family businesses, these long-lived firms have carried on through constant innovation.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: [스마트 경제 읽기] 일본 장수기업의 비결

Author: Sung-no Choi

Date: 2021-08-30

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=4&idx=24161