No. 35: Japan Tobacco gives a lesson for global business development (April 28, 2013)

Management: 
Japan Tobacco increased the consolidated operating profit 16% over the previous year to more than 532 billion yen in the fiscal year ended March 2013, renewing the past highest consolidated record two years in a row. The company is expected to achieve a two-digit increase in operating profit again in the fiscal ending March 2014. Why is its business so brisk against the background of movements against smoking?

The answer is simple. They cultivated foreign markets and increased its share in the domestic tobacco market. The sales increased 4% to about 2,120 billion yen, of which tobacco sales from foreign markets increased 5% to 1,011 billion yen. Especially, they successfully introduced high-end highly profitable brands like Winston in Russia and the surrounding countries, taking advantage of the growing income level in this region. Sales of these brands increased 10% over the previous year in the number of cigarette. They increased the price of their brands in Russia, France, and Italy. The price hike contributed to the increased profit rate greatly. They focus on cultivating promising foreign markets and introducing premium brands to the upmarket as the income level grows. The strategy is totally simple and logical. They are also successful in the domestic market, increasing the domestic tobacco business 6% to about 690 billion yen. The share increased from about 55% to 60%. This can partly be attributed to the strategy to change the name of the bestselling brand “Mild Seven” to “Mevius.”

The lesson that Japan Tobacco gives is simple: Expand the share both at home and abroad and focus on promising markets with excellent products.  

 From Mild Seven to Mevius

 

No. 34: The way that a Japanese medium-sized company should take (November 17, 2012)

Management:

Calbee, a coinage from calcium and vitamin, is one of Japan’s leading snack food makers. The company is enjoying a high popularity in the stock market. Its current aggregate value has grown three times since it was listed on the day of the Fukushima disaster in 2011. In the past, it had 15 plants to deliver fresh potato chips to every corner of the country, and the densely distributed production network contributed much to increasing its share in the 1970s and 1980s. With the progress of logistic technology, however, the production network became ineffective.

The new president invited by the founding family from a foreign-affiliated company rationalized the production system. He reduced the production cost by integrating the production and material procurement systems, and allocated the money available from cost reduction for sales promotion cost. The increased rebate realized by the increased sales promotion cost motivated retailers and increased Calbee’s share from 60% to 70%. Accordingly, the capacity operating rate of its plants increased from 69% to 75%. The positive growth cycle allowed the company to triplicate the operating profit to more than 15 billion yen in three years.

Calbee is very active in expanding the market overseas. It concluded a contract with PepsiCo of the U.S. to give the exclusive right to PepsiCo that markets its products supplied by Calbee on an OEM basis in North America, though PepsiCo’s requirements were rather demanding. In exchange for the scarcely profitable contract, Calbee secured stable and inexpensive supply sources of potatoes. Combined with automation of production, this contract helped the company open up a road to an operating profit higher than 10%. The company is developing the Chinese market in alliance with a local company, and conducting feasibility study in Vietnam and Indonesia. It plans to increase the ratio of overseas sales from 4% in 2011 to 30% in 2021.

The Calbee story indicates what a medium-sized Japanese company with an established technology should do in the age of globalization in whatever field it is doing business. That is, the first thing that it needs to do is streamlining the operation to reduce production cost, then it should increase the share with the help of competitive product prices to establish a dominant position in the domestic market. Then, it should develop foreign markets in alliance with a local company with a strong sales force because population decrease and aging of society is accelerating in Japan. Even a snack food can expand the market overseas, even though taste varies with the countries. What is important is not a product but an effort to make a product acceptable to local people of each foreign market. 

One of Calbee’s latest promotion videos

 

No. 33: The target is the global market (November 14, 2012)

Management:

Hitachi Materials and Hitachi Cable, each of which is a subsidiary of Hitachi, will merge next April to create a company with sales of 1 trillion yen to compete successfully in the global market. Hitachi Metals has about 40% share in the world market of high-performance metals for electric vehicles. The company has a strong competitive edge in high-quality metallic materials for autos, electric appliances, and industrial infrastructure. Hitachi Cable has a strong presence in the market of cables for electric power companies, but it has been in the red for five consecutive years because of dwindling sales. The company enjoys competitive advantage in the construction of social infrastructure including railway network and transmission network that has great demand in developing countries.

Hitachi has been placed importance on independence of each subsidiary. Each of Hitachi’s subsidiaries has a great presence in the domestic market, but Hitachi’s subsidiaries are mostly not big enough to compete in the global market. Hitachi acquired five of its subsidiaries through TOB as part of its strategy to focus more on the IT and social infrastructure business. This strategy improved Hitachi’s results dramatically and allowed Hitachi to recorded net profit of about 350 billion yen in the fiscal year ended in March 2012. However, GE of the U.S. and Siemens of Germany are far ahead of Hitachi in the social infrastructure business. Needless to say, the strategy to pursue economies of scale is one of the most critical factors to compete successfully in the global market. 

 

Hitachi Metals and Hitachi Cable merge to increase 

presence in the world social infrastructure market

No. 32: Japan grows more serious about resources in Africa (October 31, 2012)

Business trend:

Japan will hold a conference with cabinet members of major resource-rich African countries to discuss the development of natural resources in Tokyo next May. The conference will be participated by such international agencies as the World Bank and African Development Bank and private companies. About 10 African countries including South Africa, Ghana, and Madagascar are expected to participate in the conference, and Japan wishes to reach an agreement with them on resource exploration.

After the Fukushima disaster, demand for fuel for thermal power generation is growing rapidly in Japan. And the Japanese government is eager to develop the African market for coal and oil. Such subjects as infrastructure improvement wit the help of official development aid and developing human resources from Africa to let them study Japanese environment-conscious technology will be discussed. China is ahead of Japan in resource development in Africa. China invested 15 billion dollars in Africa between 2008 and 2011, whereas Japan invested only 2 billion dollars in the same period. African countries are worried about the development by China from the viewpoint of environment destruction and disparagement of workers’ safety. They eagerly wish Japan to increase its presence in Africa. 

Responding to the voice of African countries, Japan will hold a conference with them on resource exploration in Tokyo next May. The conference will be participated by international agencies like the World Bank besides the African countries.

 

No. 31: Nippon Express introduces a system to manage inventory on a worldwide basis (September 22, 2012)

Management:

Nippon Express currently has warehouses in 278 locations with a total area of 1,700,000 square meters around the world. The warehouses are currently managed by systems that vary with the country, warehouse, and customer. The company will integrate them to manage the warehouses on a worldwide basis. Scheduled to be ready in 2016, the new system will support Japanese, English, and Chinese. It will allow Nippon Express to confirm the operation of all the warehouses on earth instantaneously in Japan, and its customers can realize the optimal inventory control and commodity supply on a world basis. 

The new system will utilize cloud computing. The servers will be installed in Japan and several locations abroad. The investment is about 1 billion yen. Although Nippon Express needs half a year to introduce a warehouse management system tailor-made to each customer, the new system can halve the required time to three months. With the introduction of the new system, the company reckons that it can reduce the personnel for system maintenance form the currently 100 to 50. This decision is part of the strategy to increase the sales in foreign countries from the current 30% to 50%.

Nippon Express in India

No. 30: Railway stations increase the presence greatly in life and business (September 16, 2012)

Management: 
With the growing concern over climate change, the railway business seems to be attracting great attention worldwide. This trend is very notable in Japan. Traditionally, railway stations played a very important role for the development of the urban area in Japan. Unlike in western countries, people used to walk a lot instead of driving a car or riding a horse in Japan. That is, the terminal from which a railway departs and in which it arrive is closely related to people’s life. People shop around and enjoy life in and around a terminal. Motorization changed the life style of Japanese, but the situation is changing fast recently. 

Osaka Station, one of Japan’s big terminals, attracts 2.5 million people daily, and a total of 12 companies are involved in the redevelopment of its vicinity. The Grand Front Osaka project will be completed in the spring of 2013. Four high-rise buildings are being constructed in the 7-ha idled site that used to be a station of freight-train cars. In these high-rise buildings, a total of 522 condos are being constructed, about 90% of which are already sold at this moment. Besides, about 60 residences as expensive as higher than 100 million yen each are selling fast as a pancake. In Osaka, another big project is in progress under the initiative of Kintetsu, Japan’s leading private railway company. The 300 meter tall complex building called Abeno Harukas is being constructed with an investment of 130 billion yen in the southern part of Osaka. It will have museums and an observation deck besides department stores and hotels as tenants. The same trend can be observed in Tokyo, too. The large-scale complex facilities Shibuya Hikarie that features the nation’s largest musical theater, Tokyu Theater Orb, that has a seating capacity of 2,000 was opened July 18 this year. 

It has become clear that people are coming back from the outside the town to the inside the town. The great Ichizo Kobayashi defined the railway station as a place that gives people a communication tool instead of merely as a place where people get on and off the train. In the beginning of the 20th century, he was the only businessman that defined the railway station in that way. The recent trends we observe remind us of his greatness. His famous remark, “If you in need of a customer, why don’t you create a customer?” His remark has something in common with the famous remark of Dr. Peter Drucker. He said, “Business is to create and keep a customer.”  

Grand Front Osaka is being constructed toward 
the opening scheduled for the spring of 2013.

No. 29: Focusing on growing markets with a strategy suitable to each market (July 17, 2012)

Management:

Unicharm, Japan’s leading maker of paper diapers and sanitary products, is busily occupied with expanding the market in Southeast Asia. It will build the third plant in Indonesia and the second plant in India in 2013 with an investment of 2.5 billion yen to cope with rapidly growing demand in Southeast Asia, while closing the plant in Australia. Actually, the existing two plants in Indonesia cannot satisfy the rapidly growing demand at present. Paper diapers, in particular, are enjoying great demand. According to the company, the market of paper diapers and sanitary products combined is 72 billion yen in 2012 and expected to double in 2020. The company achieved sales of about 150 billion yen from the Asian market in fiscal ending March 31, 2012, increasing the sales two times in four years.

Japanese companies that focused on growing markets with a strategy suitable to each market are successfully expanding business in the Asian region. They mainly aim at the low-income class called Base of Pyramid (BOP) whose annual income is less than 430,000 yen. Mandom, one of Japan’s leading cosmetics maker, has 70-80% share in the hair dressing market in Indonesia. It sells its products in a small package with only 3-6 gram content. Ajinomoto, worldwide famous for its seasoning Ajinomoto, sells its products in a small package with 0.09 gram content, whereas a bottle with 75 gram content is standard in Japan. Each package is sold for 0.42 yen. Yakult, Japan’s leading lactic acid bacteria beverage market, is successful with a sales network supported by 27,000 Yakult door-to-door sales ladies in China and Indonesia where the door-to-door sales method was not popular before the arrival of Yakult.

The above stories give various lessons. Focus on growing markets. Do not hesitate to scrap unnecessary bases and build necessary bases for business expansion. Be specific to each market. Ultimately, business is communications between marketers and consumers regardless of the sales method selected.  

 A Yakult door-to-door sales lady and her customer