Japan’s economy is dominated by family businesses, some of which are exceptionally long-lived, accounting for at least 40% of the world's firms over 100 years old. What are their secrets and what can CEE countries learn from them? In his latest article György Drótos, Associate Professor of Corvinus University of Budapest and Head of the Corvinus Center of Family Business examined six success factors and their potential application in CEE countries.
In Japan, the number of people over the age of 100 has risen to more than 92,000, according to the latest statistics. But it is not only the health of the people living there that is strong, but also that of Japanese family businesses. This is evidenced by the fact that there are tens of thousands of century-old companies: most sources estimate their number at 33,000, while others put the figure at 50,000 or more. Moreover, 1,938 of these companies have been in business for more than 300 years, 147 for more than 500 years, and 21 for more than 1,000 years. One of the oldest family-owned companies is Kongō Gumi, founded in Osaka in 578. It was finally sold in 2006, but still exists today as a separate business unit within a corporation. More importantly, it has operated as a family business for 1,428 years, over 40 generations.
Professor Toshio Goto, a prominent researcher on the subject, suggests that six factors account for the extraordinary longevity of these companies:
Long-term time horizon
Many Japanese family businesses are still run according to the teachings and admonitions of their founders that include both values to be followed and desirable management practices. Besides, long-term thinking is also underpinned by the ie system, which still lives on in the traditions. The ie is a highly cohesive "extended family" concept. In addition to blood relatives and those already entered by marriage or adoption, it symbolically includes all deceased ancestors and even generations yet unborn: the ie is therefore eternal. Of course, all this may seem strange to a CEE family business. Nevertheless, some similar practices can be considered: e.g. creation of a family constitution, intensive in-family cooperation, regular recollection of the past, and a vision for the future.
Controlled growth
Typical of the founders' teachings is the principle of maximum caution when expanding the business, even under otherwise favorable circumstances. Building reserves and preparing for stormy times is a more important virtue than growth. This attitude may also be worth considering for CEE companies.
Focus on core competence
The concept of core competence, which became popular in Western management literature in the 1990s, has always been typical for Japanese family firms. The emphasis on core competence also encourages continuous improvement. Many CEE firms are also good at this, while for others the Japanese practice can be another inspiring example.
Lasting partnerships
Just as the group, rather than the individual, is at the center of the ie system, Japanese family firms see themselves as part of an ecosystem that includes customers, suppliers, and other stakeholders in local society. Within this network, the strong links are typically used when the environment is stable, while the weaker ones are utilized in more volatile times. Because these companies follow a social mission (purpose), they can rely on their broader community in times of peace and crisis alike. Given the more individualistic culture of many CEE countries, our family businesses may find it odd to adopt a similar mindset, but the Japanese example can reassure them that it pays off.
Risk management
Professor Goto's team studied the crisis resilience of Japanese family firms over 100 years old in the context of COVID-19. One of their surprising findings was that these firms do not simply manage crises, but rather "expect" them: they believe that critical periods will occur every ten years or so. As for their reserves, more than 50% of them could survive for six months without any income, and 27% for up to two years, while continuing to pay their normal expenses. It is unlikely that CEE companies would be able to survive in such proportions and for such a long time in a very severe crisis, so they might consider developing their risk management practices, following the Japanese example.
Intergenerational commitment
Caring paternalism on the part of the head of the family, filial obedience on the part of the male descendants: these are traditional values, rooted in Japan's dominant religions, that have kept the succession of family firms well-oiled for centuries. What distinguishes Japan from many countries with similar backgrounds is that it finds solutions even when there is no son in the direct family line or the son lacks the necessary aptitude. The next general manager may be a female child or her husband who marries into the family, or even a capable employee who has been brought into the family through adoption. The latter is not uncommon, and in 98% of adoptions in Japan, men in their 20s and 30s are placed in new families to take over their businesses. Succession by adoption can work from the smallest family firms to the largest, including Toyota and Suzuki. Despite the strong cultural contrasts, this is perhaps one of the strongest messages for CEE family businesses: look around in the extended family, or even outside the family, for the most suitable successor, and choose based on ability and willingness.
Bio
György Drótos leads courses at all levels from BA to Doctoral education. He gained insight into MBA programs at Warwick Business School (UK), IESE (Spain), Case Western Reserve University (USA). His main research interest is the use of digital technologies to transform business processes in private and public organizations. In 2016 he founded the Corvinus Center of Family Business and has been leading this unit since then. He has always been active in management consulting and was an appointed partner at Horváth & Partners for ten years.
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