Japanese mantra for firms to survive crises, last for centuries

If a company survives 1400 years, it is a part of history. And if several thousands of companies of the same country survive more than 200 years each, their longevity must be a subject for researchers to study - the cycle of their birth, growth, decline and death.

None but the land of the rising sun, Japan, is the country that has housed such companies with extraordinary longevity, attracting researchers to study the reasons behind their extraordinary life cycle.  

The findings offer lessons for others on how to survive crises, including the current one triggered by the coronavirus pandemic, and last long. 

A study report by the Bank of South Korea reveals intriguing facts: Japan alone houses more than half of the world companies older than 200 years.

The report released in 2008 found 5,586 companies older than 200 years in 41 countries. Of these 3,146 (56%) are in Japan, 837 (15%) in Germany, 222 (4%) in the Netherlands, and 196 (3%) in France.

The story goes on. Seven firms in Japan have been around for more than one thousand years. A Japan's nationwide survey the following year offers more. It counts more than 21,000 companies older than 100 years, as of September 30, 2009.

Moreover, the country has housed the world oldest company: Kongo Gumi, a family-run builder that died in 2006 after surviving for around 1,400 years.

The Mantra

What is the story behind the enviable longevity of Japanese companies?

This is the question that prompted the Bank of South Korea to conduct the study to understand the life cycle of global companies, particularly those in Japan.

While speaking on the study findings, its senior manager Jung Who-sik focused on the strength of Japanese companies.

Japanese companies, he said, didn't look away for business expansion and focused on their core businesses by accumulating and developing unique skills and know-how.

He also cited management based on the trust of stakeholders, a professional CEO system and conservative management, for the long lifespan of the firms, according to a report by The Korea Times published on May 14, 2008.

In the study, the South Korea central bank explored reasons behind the short life span of Korean companies.

The central bank said the key reasons behind short life spans of Korean firms were reckless, sprawling business expansion and family-centered management practices.

"Many Korean firms did not focus on their core businesses. Instead they tried to pursue sprawling expansion,'' Jung said. 

"In addition, many failed firms were highly family oriented, transferring the ownership from a father to a son, regardless of individual capability.''

The study by the Bank of South Korea found efficiency, skill and professionalism of the policymakers of Japanese companies as the reasons behind their longevity.

A Harvard Business School professor in his study found another extraordinary quality of Japanese companies: Human-centered. That quality has made them so good at surviving crises.

Professor Hirotaka Takeuchi and his Harvard Business School students had studied businesses rebuilding in Japan for nine years after they were hit hard by the earthquake in 2011.

In the study, the Harvard professor explains Japanese companies' unique strategy of investing in community over profits during turbulent times.

He found that Japanese companies demonstrated a rare capability for long-term survival after the 2011 earthquake and tsunami, according to an article on his study published by Harvard Business School's Working Knowledge on its website in June this year.  

A 9.1-magnitude earthquake triggered a powerful tsunami, generating waves higher than 125 feet, that ravaged the coast of Japan, particularly the Tohoku region, the largest and most populous island in the country.

In that catastrophe, nearly 16,000 people were killed, hundreds of thousands displaced, and millions left without electricity and water. Railways and roads were destroyed, and around four lakh buildings damaged. A nuclear power plant that suffered a meltdown of three reactors prompted widespread evacuations.

Many of the companies in the Tohoku region continue to operate today despite facing serious financial setbacks from the disaster.

How did these businesses manage not only to survive, but thrive?

One reason, says Professor Hirotaka Takeuchi, was their dedication to responding to the needs of employees and the community first, all with the moral purpose of serving the common good.

Less important for these companies, he says, was pursuing layoffs and other cost-cutting measures in the face of a crippled economy.

"Many Japanese companies are not that popular with Wall Street types because they are not as focused on gaining superior profitability and maximizing shareholder value," he says. "They talk consistently instead about creating lasting changes in society."

In the study 'Wise Leadership and Wise Capitalism' Prof Takeuchi cited examples of how the leaders of some companies jumped into action soon after the tsunami devastated the area.

Here is an example of the human-centered approach of Japanese companies.

On the fateful day of the tsunami, the chief executive officer of Lawson, a chain of convenience stores, watched out his Tokyo office window as skyscrapers swayed.

Just minutes before the tsunami reached the Tohoku shore, he sent an order to employees: "Deliver food to disaster victims within seven days. And disregard cost."

During the two vulnerable weeks before government relief kicked in, Lawson delivered 200,000 prepared meals to victims, including onigiri rice balls, bread, and cups of noodles.

The company also took care of its own in an area where 13 employees, including store owners and managers, died in the disaster.

The Harvard professor thinks volatile periods present the ultimate opportunity for leaders to put themselves in the shoes of those who are suffering and take action to "make the future."

"Many companies are stuck in short-termism, focusing on a strategic plan for five years," he says. "But a lot of Japanese companies think about 100 or 200 years from now and envision the kind of future they want to create."

"During the tsunami disaster, the key mindset of executives was: We have to empathize with others. And companies ought to do the same thing now, during the current crisis, empathizing with those who are suffering and trying to figure out how to help," said the professor, as quoted in the article.

The BBC in a report published in February this year asked some experts the same question: Why are so many of the world's oldest companies in Japan?

Yoshinori Hara, dean and professor at Kyoto University's Graduate School of Management says that Japanese companies' emphasis on sustainability, rather than quick maximisation of profit, which is a major reason why so many of the nation's businesses have such staying power.

"In Japan, it's more: how can we move [the company] on to our descendants, our children, our grandchildren?" says Hara, who worked in Silicon Valley for a decade.

Michael Cusumano, a professor at the Massachusetts Institute of Technology who spearheaded entrepreneurship and innovation initiatives at the Tokyo University of Science from 2016 to 2017, and lived and worked in Japan for eight years, tells something more noteworthy.

"Closing a company or selling it is also considered something of a failure and shame in Japan, and this feeling goes back centuries. So these cultural issues also seem to encourage families to keep firms going," he told BBC.

Lesson From World's Oldest Firm

The world oldest company, Kongo Gumi, that died facing the financial crisis in 2006 after surviving around 1400 years, has left behind lessons for global businesses on longevity.

Kongo Gumi boasted some internal positives that enabled it to survive for centuries. Its last president, Masakazu Kongo, was the 40th member of the family to lead the company.

He has cited the company's flexibility in selecting leaders as a key factor in its longevity. Specifically, rather than always handing reins to the oldest son, Kongo Gumi chose the son who best exhibited the health, responsibility, and talent for the job, says a Bloomberg report in April 2007.

"To sum up the lessons of Kongo Gumi's long tenure and ultimate failure: Pick a stable industry and create flexible succession policies. To avoid a similar demise, evolve as business conditions require, but don't get carried away with temporary enthusiasms and sacrifice financial stability for what looks like an opportunity."

It seems many businesses in Bangladesh has learnt little from Japanese companies.

Selection of weak leadership as successors and unplanned investment for expansion have caused many demises.

Take Otobi as a glaring example. It was born in 1975 as a brainchild of noted artist Nitun Kundu. Beyond building up the company in the country over the course of 30 years, he presented it beyond the country's frontiers as an unparalleled Bangladeshi furniture brand.

However, the country's once top furniture brand lost its direction following the death of Nitun Kundu in 2006.

Instead of concentrating on its main business, a number of imperfect decisions, including investment in the power sector, have turned Otobi into a dying company in just 10 years, according to a report published by this newspaper in January this year.

The company is at risk of closure due to its massive debt burden. Analysts say weak leadership and unplanned investments have caused the company to sink.

Lessons For Today's Crisis

Today's businesses deeply hit by the coronavirus pandemic may learn lessons from Japanese companies that have survived for centuries.

Dedication to responding to the needs of employees and the community first is the mantra behind the success of Japanese companies.

But the gravity of the economic crisis caused by the pandemic is so big that it has forced Japanese companies to think otherwise, like other firms across the globe.     

A majority of firms in Japan said they have taken steps — from layoffs to pay cuts — to cope with the fallout from the coronavirus pandemic on the world's third-largest economy, according to a monthly poll conducted by Reuters in June.

Prime Minister Shinzo Abe however has responded with two relief packages totaling $2.2 trillion, one of world's biggest stimulus for payouts to citizens and ailing firms to fight the pandemic shock.

It is hoped that Japanese firms will be able to overcome the pandemic fallout using their old mantra that helped them recover from crises in the past.

Noted economists across the globe seem to take inspiration from Japan's centuries' old mantra as they have been urging firms to respond to the needs of employees. They have also warned the global firms that laying off workers would slow down the recovery.   

In Bangladesh, many businesses, particularly some RMG factories, laid off thousands of workers after the coronavirus pandemic struck. Many have opted for pay cuts. Laid off workers have no unemployment protection like in Japan and other countries.

Will these acts such as laying off and pay cuts help them to recover and survive for long? The Japanese mantra says NO.