Business Lessons from the Country with the Oldest Companies on Earth
A key element of Japanese sustainability is its focus on longevity
A few months ago, I learned that the oldest business in the world still operating today was founded in 578 AD. And that the second, third, fourth, and fifth oldest were founded in 705 AD, 717 AD, 718 AD, and 771 AD, respectively.
And that all of these businesses are Japanese.
Your first guess might be that these are big conglomerates, such as Mitsubishi or Sumitomo. In reality, most of these businesses are small to medium in size, and span a wide variety of industries, from construction to hotels to ceremonial paper goods.
In fact, Japan is home to over 33,000 — or 40 percent of the world’s total — businesses that have been around for at least a century. And every year, more than 1,000 companies reach their 100th year anniversary.
This made me pause and think. It can’t just be a simple coincidence that Japan is home to so many old businesses.
If longevity is the ultimate barometer of sustainability, couldn’t we argue that Japanese shinise, or old companies, are sustainable, given that they have survived for generations despite wars, famines, and earthquakes? How do these companies fit into our current conception of sustainability, and what can they teach us about sustainability?
The widely used definition of sustainable development is that we must meet the needs of the present without compromising the ability of future generations to meet their needs. What’s implied here is that sustainability does not happen magically overnight. Rather, it is something that is achieved through intergenerational cooperation over long periods of time.
However, in recent years, the concept of sustainability has unfortunately become intertwined with political ideologies. Moreover, the term is thrown around in so many different contexts, including in marketing, PR messaging, and environmental action — and at times in insidious ways, i.e. as greenwashing — that it is starting to lose its meaning.
Today, creating businesses that are built to last hundreds of years has become much more of a challenge than it was in the past. Despite the prevalence of and respect for shinise, Japan has not been immune to the influences of industrialization and the consequences associated with short-termism. To survive today, traditional businesses are required to strike a delicate balance between maintaining their heritage and craftsmanship, and keeping up with the times. And though Japan may not be a sustainability superstar as measured by United Nation’s Sustainable Development Goals (it currently ranks 17th out of 166 countries), its culture arguably embodies a spirit of sustainability that we can learn from.
A Long-Term View of Success
Not surprisingly, newer, larger Japanese corporations tend to act more capitalistically (by necessity and design) compared to traditional, smaller businesses that behave in a more quintessentially Japanese manner. Though these businesses differ significantly in their incentive structures and goals, they possess common inclinations that are rooted in culture. Perhaps the most notable one is their tendency to have a long-term perspective.
It is no secret that Western business leaders and investors often find Japanese businesses frustrating. Though Japanese business owners certainly agree that generating profit is essential for survival, they do not view maximizing short-term profits as their priority. For them, making sure their business lasts for a long time — through cultivating and maintaining enduring relationships with customers and employees — is the key goal. This mentality is perfectly captured in the Japanese phrase, “hosoku nagaku,” which can literally be translated to, thin and long. The notion here is that stable longevity is more important than is short-term dynamism. So how does this idea come to life in the way shinise operate?
Ichiwa is a small mochi shop that was founded by the Hasegawa family in the year 1000 next to a shrine in Kyoto. To this day, it serves toasted mochi — the only item on the menu — to visitors of the shrine. Despite being presented with multiple opportunities to expand its business, Ichiwa has refused such offers. The Hasegawas’ goal has never been to make a quick buck and then retire or move onto something else. Rather, it has been to pass on its traditions indefinitely over generations, and to continue to serve customers who stop by when they visit the shrine.
Kaikado is a business in Kyoto that was founded in 1875 and prides itself on selling beautiful, hand-made tea canisters that can last for 100 years. That’s not a typo — these tea canisters can be used for a century. Indeed, some of its customers have passed on their tea canisters across two or three generations. This, according to Kaikado, is made possible not only because the customers take great care of their products, but also because the business ensures that its craftspeople continue to pass on their knowledge and experience of maintaining and repairing its products across generations.
As is apparent in the examples described above, one of Japan’s key “secrets” to sustaining a business across generations is its focus on long-term relationships. At the same time, such businesses have also been able to successfully protect and grow the value of their brand assets and equity over time precisely because they remain true to their heritage and tradition. In this way, longevity in and of itself becomes an inseparable part of these businesses’ identity.
Needless to say, when the business objective is to be around for a long time, maximizing short-term profits is not a sound strategy. Instead, what becomes important is to develop and nurture relationships with customers. This translates into offering high quality items that are durable; proactively seeking feedback from customers so that they can continuously improve their products and services; and ensuring that their customers are happy and well taken care of. Such businesses want to survive not only for their family and employees, but also for their customers who expect them to be around generation after generation.
Furthermore, compared to other countries, Japan tends to be risk-averse. In fact, Japan is known to be one of the most “uncertainty avoidant” countries in the world, an outcome that is often attributed to the prevalence of natural disasters throughout its history. As a result, Japanese businesses tend to keep debt at a minimum, and prefer to keep ample cash on hand. Consistent with this idea, a survey of 100+ year old companies conducted during the pandemic revealed that more than a quarter of them had enough cash to operate for at least two years.
Of course, the long-lasting nature of a product wouldn’t be a good selling point if customers didn’t appreciate the idea of owning something for that long, and were not interested in engaging in a lasting relationship with the business. Since such products typically cost more and require maintenance from time to time, ownership of such items is a commitment that the customers must be willing to make. This presents a chicken-or-egg situation, as both the business and the customer must trust the other side to a certain degree, and be open and willing to engage in a relationship that can last beyond one’s lifetime.
The remarkable longevity of Japanese businesses seems to be suggestive of the fact that owners have a much longer time horizon and a patience that is less common among U.S. businesses. Moreover, shareholders may not be considered the primary constituent for Japanese businesses; if anything, customers are often viewed and treated as the priority. There is truth to a dated but still relevant Japanese phrase (presumably, it was first used by a Japanese traditional singer in the 1960s): Okyakusama wa kamisama desu, meaning, customers are gods.
In the U.S., many businesses still subscribe to the idea of shareholder capitalism — a capitalistic model that, when taken to an extreme — focuses solely on maximizing profits for the sake of shareholders while disregarding the well-being of society and the environment at large. These businesses tend to operate more transactionally, as reflected in the frequency at which ownership change and employee turnover occur. They also tend to focus on short-term management incentives and quarterly earnings, particularly in public markets.
Moreover, consolidation of businesses happens frequently in the U.S., sometimes in the name of efficiency. In 2019, the total dollars spent on M&A in 2019 was almost 10 times larger in the U.S. than in Japan. Considering that the American economy is a little over 4 times the size of Japan’s, the gap is suggestive of a much more active buyout and takeover market in the U.S. Private equity activity is certainly more dynamic in the U.S., and it is not rare for business founders to have an exit strategy in mind from day 1. In this environment, a time span of 5, maybe 10 years is considered long; indeed, if a business — especially a startup — survives for that duration, they are celebrated as an exception.
Furthermore, as market cycles have shortened, consumers have become well conditioned to move onto new products quickly and without much thought. They dispose of most of the products they purchase, from clothes to tea cups to smartphones — sometimes grudgingly, and sometimes with a resigned delight — within a few years, only to instantly replace them with something else. This trend is certainly not unique to the U.S.; consumers in industrialized nations around the world, including in Japan, have become acclimated to this type of transactional and arguably wasteful consumption over the years.
The good news is that the tides have started to shift towards more mindful consumption, as younger consumers are becoming more aware of businesses’ contribution to the climate crisis as well as other environmental and social sustainability issues including environmental degradation, pollution, and exploitation of labor, to name a few. More and more consumers want to end this continual dependence we as a society have on frivolous materialism in the form of “retail therapy” — to alleviate our day to day stress and to create temporary happiness. After all, the minimalism boom did not appear out of thin air.
Rethinking the Way of Business
Consumers in the U.S. and abroad are increasingly putting pressure on businesses to be better citizens and to be more transparent in how they operate. Consumers, particularly in the consumer technology industry, are growing increasingly frustrated about having to replace their products every few years, if not within a shorter timeframe. As a result, consumers are demanding their right to repair products instead of having to replace them because the products are essentially designed to not be easily fixable, or because of the product’s planned obsolescence.
Given this context, it is perhaps not surprising that the Japanese art of Kintsugi, in which broken ceramics are repaired and given new life, has been gaining significant popularity in the West. Kintsugi artists pour a mixture of lacquer and gold to mend the cracks; as a result, the cracks are purposefully accentuated, giving the repaired object a new and beautiful appearance that is truly one of a kind. In this way, Kintsugi enables us to renew our sense of appreciation and respect not only for the object itself, but also for the craftsperson and her skills as well.
As more and more people become aware of the negative consequences associated with fast, cheap, and mindless consumption, the hope is that both businesses and consumers collectively start to question the status quo and move in the right direction.
The truth is, we don’t value things that are free and we take better care of things that we have to pay more for. It’s not difficult to extend this logic and argue that fast fashion, fast furniture, or fast anything, makes us less likely to respect and value products. Regardless, marketing campaigns that encourage fast consumerism would have us believe that we should be on a constant lookout for the newest, trendiest products every season.
Though we may not be able to change the way businesses operate or the way we consume in an instant, we can start to shift our mindset by learning about the counterfactual — about how different things can be. Granted, Japanese businesses are nowhere near perfect. They need to seriously tackle and improve gender inequality and better enable their employees to strike a better work-life balance.
Yet, Japanese shinise reminds us that the way many U.S. businesses operate today is not the only way. If businesses take the time to rethink their purpose and adopt a more long-term view, they might develop their products so that they are higher quality and more durable. They might consider ensuring that their entire supply chain is sustainable and that their employees feel valued. They might treat their consumers with more respect and listen to their feedback with more genuine interest. And if consumers feel that businesses care more about them, they are more likely to trust them and be loyal to them. Consumers will then be more likely to treat what they purchase with more care and love. Care and trust is a feedback loop.
When I spoke with Reverend Takafumi Kawakami from Shunkouin in Kyoto recently, I learned a new Japanese term: un-son, or cloud-grandchild. The implied meaning is that we must think about the future not only for our children and grandchildren, but also for future generations who may be as distant from us as are clouds. That’s why it’s essential to have a longer time horizon, he says. Japanese people don’t expect to “make it” in one generation; they understand that ups and downs are a normal part of life — some generations are more successful than are others, failures can happen, and that’s OK. What’s important is for the business to survive so that it’s successful over the course of generations.
Naturally, having a longer outlook will shift our priorities. It’s time for businesses to move away from the now default mentality that people and objects are easily disposable and replaceable, and remember that we can build resilience and sustainability if we invest our time and effort in nurturing and cherishing the relationships we have with various stakeholders.