The Japanese outlook

In anticipation of the forthcoming launch of a new FBN chapter in Japan, Sonia Totten leads a discussion between Yoshiharu Fukuhara, Honorary Chairman of Shiseido Corporation, and Jean-Pierre Lehmann, Professor of International Political Economy at IMD, about the current family business environment in Japan

Sonia Totten (ST): To what extent is the current Japanese environment 'friendly'for new and emerging family businesses?

Yoshiharu Fukuhara (YF): It's not an easy one at present. To maintain or sustain the current level of size and business that already exists is not such a difficult task. But, for brand new businesses to be born it can be quite questionable even though starting up a company in Japan is a simple bureaucratic process.

Due to the present banking crisis, banks are hesitant about lending money to families without substantial assets. As a result, the environment is not favourable for new family businesses to emerge. However, if they have some kind of seeds like special technology/skills, there should be capitalists, not banks, eager to supply funds.

Jean-Pierre Lehmann(JL): Looking at the current Japanese economic situation, which is not very encouraging, many different programmess exist for trying to kickstart the economy. Looking at the demography and aging population you can see that the developing family businesses and FBN could be an important engine for further economic growth.

In some countries like France, the really dynamic part of the economy consists of mainly small- and medium-sized family businesses. Old ones, and also new ones. People start new businesses and this has many advantages in terms of employment practices. In France, it's quite difficult to start a company because of bureaucracy. I live in a region not far from Cognac and many of the Cognac companies are quite small family companies that produce items like paté de fois-gras, wine and goat cheese. These businesses are very dynamic elements for society and are important wealth-producing parts of the French economy. Maybe in Japan this could be important, particularly as unemployment is increasing and there is a need to restructure large companies.

YF: What you pointed out is crucial. As the population is living longer, there will be fewer people who will stay in the same company until company retirement age. There is actually a chance, therefore, that the situation will lead to quite a number of skilled employees around the age of 40 leaving the company they work for to start their own business.

But, at this present moment, the economic environment is not good. It is difficult to raise enough finance to start a new business. However, if some success in the current economic policies is achieved and the condition returns to the previous state, then there will be plenty of opportunities for people in their 40s and 50s, who have already had sufficient experience in society or in a company, to create new businesses. The potential for this is quite high.

JL: I think there will be many opportunities here for families to get together, particularly with the future looking so uncertain. Hitachi, Toshiba and similar companies are not going to be the huge employers that they were. People will begin thinking along the lines of being entrepreneurs rather than salaried workers, and will try to involve their families. This could offer many good prospects, but it's very difficult because of political oppositions from lobbying groups. However, I think there is a link between the two phenomenon. The 21st century economy, in my opinion, has to be open, entrepreneurial, stable and in good order. Right now, we don't have any of these things.

YF: That is true. The economy is very fragile and unstable, and because of such a chaotic state, people are trying to find a new job or new criteria to begin a business. The Meiji era (1867-1912) was in exactly the same situation. That is when Shiseido was created – in 1872.

ST: In Europe and the US risk money is provided by family business owners, so-called 'angels'instead of banks. What kind of fund suppliers exist in Japan?

YF: There is no tax incentive for that in Japan, is there? There is no rescue plan for failures. In Europe and the US, when businesses fail, you can deduct your losses from your income tax. In Japan, regardless of the profit/loss (success/failure), you are taxed on your income just the same. As a result, nobody would invest in such a risky business.

ST: Ten years ago the fashion in corporate governance was Japanese keiretsu (a uniquely Japanese form of corporation which involves a grouping or family of affliliated companies that form a tight-knit alliance to work toward each other's mutual success), but going forward, there could be a new healthy family business model born. In the context of American corporate governance theory, I suppose that Japanese family businesses have been viewed as rather closed. The words Douzoku Gaisha (family-controlled company) already hold a negative connotation. Do you think that family business has a chance to be accepted in a more positive light and be more beneficial to society?

YF: We have been perceiving it rather negatively. But I have learnt through our discussions today and from other previous discussions that family business is not such a bad thing and should not be defined merely as Douzoku Gaisha. For instance, after hearing about French and Italian firms, I realised for the first time that family business was not so negative after all.

ST: What about in Japan? Will the correct understanding of family business spread there and what do you think the trigger will be?

YF: During the Meiji revolution, which was called the 'Quiet Revolution' by foreigners, the social order changed rather silently. The change did not appear to be such a dramatic revolution to the outside world, but the size and the magnitude of the revolution was, in fact, enormous. In that period, low ranked soldiers that could not find employment or merchants who were at the bottom of the social ranking system were able to collect capital to start new businesses if they had a sharp business sense. But today I think we have many more opportunities.

Collecting the initial capital is the hurdle to overcome. Even if you use your retirement allowance, you could most probably only open a ramen (noodle) shop. In order to set up something a little more significant and to have more motivation and ambition for its pursuit, you need larger funds. You might also need a bigger organisation. But I stress that to be supported by the social backbone, the overall economic situation needs to improve.

JL: You were talking about the Meiji period and the change that took place then. I was fortunate to be in Japan in the 1960s and at that time, Japan had a very dynamic atmosphere; a lot was happening. And, I think it's rather a disappointment now. In the last decade or so, it's not just the economy that has become disappointing, but everything – society, the overall environment – that one feels is depressed. There's no impulse, no sense of change as in the Meiji period.

YF: I believe there are two things at work. One is that the young people today may appear to have no motivation in life. But, if you turn to the sports world, for instance, someone like Ichiro Suzuki (professional baseball player) has really shone. His skills and talents are wellqualified and recognised on the global scene. Likewise, as I speak with other young people, I find that as long as they have a chance, there are quite a few who are eager to be challenged. Still, because the current framework is based on the old paradigm, it's not easy for them to prove themselves.

The other thing is that it is very important that the family business's social value, or how family businesses could contribute to society over the public institutions, needs to be shown, to be taught, to be exemplified. Value and meaning need to be given to family businesses.

I pay great respect to the company Hayashibara and I think it's a good example of this. When Ispoke to Mr Hayashibara yesterday, Iwas surprised to hear that he did not intend to carry out his business this way. Initially Hayashibara was dealing in sugar but due to the sudden (overnight) launch of free trade in sugar signed by the foreign minister of the time, all domestic sugar lost its value. Hayashibara was forced to consider bankruptcy. In order to survive, they began research on product development – products that would use sugar. This is a very encouraging attitude – that a small firm like Hayashibara can sells its research knowledge to a large firm like Smithkline Beecham.

JL: I have another comment along these lines. George Soros has written a draft report in which he argues that having a global economy is a good thing; there should be an open economy but there is also a need to provide encouragement for the development of small- and mediumsized enterprises. He argues that protection up to a point can be helpful in those situations.

But I also think that the future is youth. I feel that in many societies and maybe in Japan in particular, there are many old people blocking the youth. Rejuvenation is an important dynamic in the Japanese society, in any society. But, I think the point that you were making is that the opportunities are there. People must be given encouragement, the chance to seize opportunities and make mistakes. That's fine. Make mistakes. But, be rigorous. This behaviour brings more opportunities to a society and also to the individual.