Japanese businesses’ deep roots in need of a tonic

Genuemon Sudo is the 55th generation of his family to brew sake amid a small grove of zelkova trees in the east of Japan. In its 874-year history, his Sudo Honke brewery has survived earthquake and typhoon, war and revolution, ruthless feudal overlords, a militarist nationalising government and, even worse, the arrival of lager.

Genuemon Sudo remains obsessed with the purity of his well water, the quality of local rice and caring for the trees that screen, shield and cleanse his brewery. “I learned these values from my father and grandfather, and I’ll pass them on to my children and grandchildren,” he says.

Family is one reason why Japan has such a large number of extremely long-lived companies. Sudo Honke is merely the 10th oldest. Kongo Gumi, which builds temples, was founded in 578. Nishiyama Onsen Keiunkan, which dates from 705, is the world’s oldest hotel.

These companies are testimony to the endurance of Japan, defeated but never colonised, and the communitarian spirit which helped it through crises that could have been terminal. But there is also a darker side to the longevity of Japanese corporations. When companies do not die, there are no raw materials from which new ones can be born; it is common to meet talented people who are wasting their lives trying to revive some aged corporate behemoth, instead of working for a start-up.

The OECD argues that business dynamism and turnover are crucial for productivity growth. Companies in Japan are born and die at a slower pace than in any other rich nation. Japan’s prime minister, Shinzo Abe, who recognises the problem, is trying to kill more companies. As part of his “third arrow” of structural economic reforms, he has a target to raise the current 5 per cent rate of business start-ups and closures to 10 per cent.

Founded 578
Construction

Kongo Gumi’s foundation story is more like a creation myth: “In 578, Prince Shotoku invited three carpenters to Japan, and among them was Shigemitsu Kongo. The carpenters built Shitennoji, Japan’s first public temple.” Kongo stayed to found the builder widely regarded as the world’s oldest company. Religion was a reliable customer: Shitennoji alone has since been destroyed by fire, typhoon, earthquake and bombing. But Kongo Gumi also proves age does not confer immortality. It took on too much debt in the 1980s, leading to liquidation and a takeover by construction giant Takamatsu in 2005.

“Bold moves should be taken to discard old facilities, equipment and assets so that [they] can be replaced with the state-of-the-art,” says his growth strategy.

When a company has lived for centuries, however, the will to survive is strong. Asked the secret to his brewery’s longevity, Genuemon Sudo’s first thought is how it has served the local community. It was originally founded, he says, to give farmers a way to make a processed product and pay their taxes. “When the Fukushima disaster hit [in 2011], we quickly investigated for any nuclear contamination. If there had been any it would have been the end,” he says. “Fortunately, there was none.”

Another quality of such enduring Japanese companies is an exceptionally long planning horizon. Sudo is 42 years into executing a 100-year plan left by his family. It gets adjusted along the way.

Long-term thinking is also the mindset of Norimitsu Nakata, chairman of Ozu Corporation, which at 362 years old is one of the most venerable companies listed on the Tokyo Stock Exchange. (Matsui Construction, founded in 1586, is the oldest company on the market.)

Nakata is thinking towards the company’s 400th anniversary, which will take place when young staff now entering the company will be 60. “The pace of change in the next 30 years will be even greater than during the last 30,” he says. “The tempo will be almost unimaginable so we need to think how to make it to 400 years.”

Ozu has changed its business many times along the way but still produces the Japanese washi paper on which it was built. “If we had stuck with washi this company would not exist any more,” he says. “We were an intermediary for paper, but as the world shifted to mass production, the need for an intermediary disappeared.”

Ozu Corporation

Founded 1653
Paper, fabrics and other products

Norimitsu Nakata, Ozu chairman, points to where his company’s shop stood in a traditional ukiyoe print of Tokyo. It remains in the same place, even if Ozu has had to be rebuild from scratch after the occasional earthquake during the past 362 years. Ozu is one of the oldest companies on the Japanese stock market. It still makes washi paper but its top product these days is cleaning materials for electronics and semiconductor plants. Its most dangerous moment came in the Showa financial crisis of 1927, when Ozu was involved in banking, railways and cotton.

Instead, the company moved into manufacturing. Nakata remains on the lookout for high-quality acquisitions and opportunities overseas in order to build a business that will last into a fifth century.

A common factor to all the companies surviving through generations is that they supply a simple necessity, eternally in demand. The 10 oldest Japanese companies comprise a builder, a brewer, a metalworker, a confectioner, two suppliers of religious goods and four hotels.

Genuemon Sudo’s biggest fear for the future is that consumer tastes might shift away from his naturally produced sake. Domestic volumes have more than halved since the 1970s as Japanese consumers develop a growing taste for wine. The popularity of Japanese food abroad, however, means sake-brewers hope to export their drink to accompany it.

“The thing I regard as the biggest risk is our customers’ tastes changing to something more artificial,” he says.

By contrast, he does not seem too concerned about whether the 56th generation will carry on the tradition, a worry for many Japanese companies where the younger generation is not only less numerous but often wants to move to the city and pursue a different dream to their parents.

“One thing important to me, when I was a child, was seeing the figure of my father working,” Sudo says. “My children say they want to continue. I hope they do.”