No. 9: Restructuring of the industry and market provides opportunities of innovation (November 12, 2011)

As Peter Drucker taught us, restructuring of the industry and market provides opportunities of innovation. In Japan, both industry and market are undergoing drastic restructuring because of the dwindling birthrate and an aging population. The manufacturing industry accounts for less than 30% of gross domestic products now. The GDP of the manufacturing sector including the construction industry decreased by 48 trillion yen and the number of workers decreased by 5,700,000 in the past 20 years. It is estimated that the number of workers will decrease another 4,000,000 over the next 10 years. It is critical for Japan to increase the productivity of the service industry and create new industries.

Gakken Holdings developed a new business field for elderly people. Taking note that pay nursing homes require a large sum of lamp-sum payment for moving in, the company renovates idle company dormitories to low-cost rental housing for elderly people, eliminating the lamp-sum payment and asking each resident to conclude a contract for the nursing service independently to keep the rent at a low level. It hit the mark. It receives lots of inquiries from companies in the manufacturing and distribution sectors that have difficulty in dealing with idle places. Actually, there are lots of idle assets that can be renovated to build nursing homes. With the development of an aging society, home delivery of water has been growing quite rapidly. It is now a market of 60 billion yen that is five times bigger than it was six years ago.

The number of new houses decreased to about 800,000 per year, which is a half in the peak period. Housing makers need to develop attractive products with features as the competition intensifies. This trend makes Elly Power, a producer of stationery batteries, even more active because houses with a storage battery introduced by leading housing makers attract wide attention nationwide. Instead of electric vehicle market, the company focused on the housing market and hit the mark. It is building a new plant to mass produce its lithium-ion batteries that can be installed in a house as an emergency power source. Idemitsu Kosan, one of Japan’s leading oil refineries, acquired a medium-sized agrichemical maker for 5 billion yen to enter into the agribio business.  

The next 100 years will be a century of energy, foods, and environment. Every company, both at home and abroad, is required to think about its business seriously, abandoning its successful experiences

No. 8: Staying in Japan to protect the state-of-the-art technology: Zebra and Fanuc (November 2, 2011)

Founded in 1897, Zebra has been specializing in writing materials. Although overseas production accounts for about 40%, the company produces its main products in Japan. Since ballpoint pens are sold at the retailer at 100 yen each on average, they can be produced at a cost about one third in China than in Japan. Nonetheless, it decided to invest 10 billion yen over the next five years to renovate its plant in Japan. The competitive edge is the pen tip that allows for uniform and smooth writing. It examines finished products to a precision of one thousandth of a millimeter and abandons all the daily productions should one of them be found beyond this precision standard. The company believes that continuous efforts to keep the product quality contribute to improving the brand equity.

Fanuc is another example to place the highest importance on the domestic production. This company builds almost all its finished products in Japan, though it sells 80% of its products in foreign countries. Its monthly robot production will increase to 5,000 units that is twice the production of its western competitors soon. The company is in a position that producing in one plant contributes to reducing production cost and increasing competitive edge. The company is in the middle of installing production equipment in the new plant scheduled to start operations coming December. It expects to increase the consolidated profits 25% over the previous year to 150 billion yen this year, achieving the record high in its history. It increased sales to about 450 billion yen in about 40 years after the foundation, and plans to increase sales to 1,000 billion yen over the next three years.

These two companies show how important it is for a company to locate its strengths and keep asking what value it can offer to customers. This approach remains the best approach to increase the brand equity in the long run even in the days of high yen.

No. 7: Integration of production seems to grow widespread: Meiji’s case (October 20, 2011)

Meiji Holdings will build a new plant for the production of dairy products and confectionery with an investment of more than 10 billion yen. The plant is scheduled to go into operation in 2016. The company integrated the food division in April this year, but this alone was not enough to cope with the dwindling domestic food market.

The construction of the new plant shows the company’s determination to accelerate the restructuring of the organization for effective response to dwindling birthrate and an aging population. The company plans to develop new high-value added products that utilize the accumulated technology and marketing know-how in dairy products and confectionery.

The Japanese food industry is not successful in solving problems with supply glut. Most processed foods are used for special sales events, and Japanese food companies are inferior to European food companies in the profit-earning ratio. According to the government statistics, Japan has about 19,000 food companies in 2009, only 7% drop from 1999. In contrast, the food and confectionery market decreased 1.5% to about 3,208 billion yen in 2010. Milk consumption decreased to about 30% to 580 billion yen in 2010. It is an urgent task for every food and confectionery company to find solutions to solve the demand and supply gap.   

No. 6: From building a house to renovating a house (October 10, 2011)

The household appliance industry keeps close watch on the development of housing. The average number of a household was 4.1 people 50 years ago, while it is merely 2.5 people at present. Single households and two-people households have a combined share of more than 60% of all households in Japan. Life inside a house is changing.

The number of houses mattered most in the period of high economic. Numerous housing complexes were built to satisfy the increasing population in the high economic growth period. In the days of dwindling birthrate and aging population, however, people naturally place importance on the interior of a house and rethink what roles a house should play for the future. Ongoing research on smart house and eco house aiming at reducing energy consumption facilitates these trends. An electric vehicle is a storage battery as much as it is a means of transport.

You have to take off your shoes when you enter a Japanese house, and this practice is rather strange for foreign people. However, it is creating lots of business opportunities. For example, when you walk on a floor carpet without shoes, you can give various kinds of information on your body, such as pulse, blood pressure, weight, and body temperature, directly to the floor carpet through your soles, and a sensor in the floor carpet transmits such pieces of information to a hospital automatically for health checkup. Lighting fixtures can be part of a ceiling, while information equipment like TV can be part of a wall.

Traditionally, a Japanese house can be characterized by aesthetic feeling based on harmony. This can be found in the tea ceremony and traditional flower arrangement. In addition, the door of each house faces the street to enhance the communication with neighbors on the street. As the aging society develops, renovating a house increases the presence at a market because the aged have enough financial resource to renovate their houses to their satisfaction.

No. 5: Keywords are focusing and the global market. (June 30, 2011)

Hitachi once dubbed a “sinking big warship” is increasing the presence in the global market quite rapidly these days. The company renewed its record-high profit in the fiscal year ended March 2011 for the fist time in 20 years. What is the driving force that allows Hitachi to record such an astounding come back? It is unquestionably the strategy that places the highest importance on focusing and the global market.

Since Japan’s national railways was privatized in 1987, Hitachi has been accumulating infrastructure technology for the railway business, such as building aluminum body and digitalization of signals. Equipped with the accumulated state-of-the-arts technology, Hitachi cultivated the foreign markets consistently. The constant efforts started to yield results. Hitachi is expected to obtain an order for a high-speed railway construction project from Great Britain for 600 billion yen. It focuses on the infrastructure business, while keeping away from such fast-moving business as semiconductor and mobile phone. It avoided getting involved in business characterized by fierce price competition and the dog year speed.

Business analysts used to suggested that Hitachi should focus on its strengths, departing from the strategy to produce and market products from home electronics to heavy electric machinery. However, Hitachi knows its strengths very well. Hitachi’s strenuous efforts to develop infrastructure technology are totally based on the motor technology from which Hitachi originated. More than 50 years ago, Hitachi’s billboards declared that Hitachi means motors, and motors mean Hitachi. As always, the base of the development is the key technology of the company.

The world faces serious global environmental issues caused by increasing greenhouse gases emissions. It is imperative especially for advanced countries to reduce greenhouses gases emissions drastically. With the background of the world fear of oil depletion and global warming, the railway business attracts wide attention. The railway business involves lots of industrial fields, and stations are the places where people can find new way of life. It can safely be said that Hitachi’s strategy hit the mark.

Any company has to construct a strategy most suitable for the current business trend because time changes constantly. However, the fact remains that development should be based on company’s key technology and keywords should be focusing and the global market.

No. 4: What drives the restructuring of retailers before railway stations (May 18, 2011)

Business centered by a railway station is growing quite rapidly in Japan. Especially, Japan Railways (JR) exerts lots of energy to activate the station business under the concept that stations are the places not only for passengers but also for shoppers. One of Japan’s leading departments opened a new outlet in Osaka station on May 4. Because the new outlet is directly linked to the platform of Osaka station, it draws 200,000 visitors daily on average. Actually, JR’s energetic efforts to activate the station business are facilitating the restructuring of leading retailers.

Historically, Japanese cities developed with a railway station in the center. In the Osaka area, two private railways are competing with JR, and the three companies naturally try to shorten the travel time between Kobe and Osaka and between Kyoto and Osaka to win the competition. Now the story has changed. What is important now is the ability to draw visitors, whether they are incoming and outgoing passengers or shoppers of department stores. With the growing presence of JR in the trend to expand station facilities and build new outlets, department stores affiliated with a private railway face the necessity of restructuring to keep their customers coming. The same situation is going on across the country.

JR’ station business is growing rapidly with its scale and efficiency. In a sense, it seems that a government enterprise is pressing hard the business of private companies, but change of thought is vital in this case. Shoppers drive out to large shopping malls with the development of motorization, but stations are ready to draw more shoppers with the growing concern about global warming. It is the time for retailers to depart from the strategy to sell almost the same product lineup at almost the same price rage to compete with JR-run retailers and devise a strategy to differentiate themselves. Only retailers successful in differentiation can survive in the days of declining birthrate and a growing population of elderly people, especially in the station-originate business.

No. 3: Growing demand for domestic premium wines (May 3, 2011)

Land left uncultivated is increasing in Japan with the progress of low birthrate and longevity, but the world is as kind as it is cruel. An increasing number of ex-salaried workers started to venture to produce premium wines. An elite businessman became independent and cultivated the abandoned farmland, and he is now growing about 7,000 vines for premium wines in this 3.2-hectare land. The most expensive wine from his winery is 5,000 yen, but it was sold out in a half year after it was launched this past spring. Another elite businessman started to produce a total of 20,000 bottles of wine and sparkling liquor in a rural area. He also runs a restaurant and an outlet of wines inside the winery, and lets visitors see the fermentation equipment and storage tanks. More than 30,000 people visit his winery and see the production process annually. Wines between 3,000-5,000 yen are popular among them.

Wines are growing popular among people as moderately priced wines become easily available. It is no longer unusual that housewives buy import wines below 500 yen at supermarkets together with foodstuffs. It can be presumed that they usually buy moderately priced domestic wines, and look for premium import wines for special occasions. However, an industry source says that sales of import wines increased 12.5% in bottle in 2010 over the previous year, but indicates that an increasing number of customers prefer import wines priced around 2,000 yen, showing a clear decrease in average customer spend. While sales of less expensive import wines are growing, Japanese domestic wine makers are shifting their focus on premium wines.

Driven by medium-sized wine makers, leading wine makers have been launching high-value added wines lately. Sapporo renovated its winery to start producing domestic premium wines around 3,000 yen coming September. Suntory launched a premium wine made only from domestic grapes was sold on its website for 18,000 yen last December, and it was immediately sold out. It is increasingly visible that preference for premium wines is growing stronger in Japan.