No. 17: Take a Different Strategy and Keep It In Strict Confidence

A company should not take the same strategy taken by the competitor in business. Sun Tzu wrote "The Arts of War" about 500 B.C. in China and insisted the importance of the strategy to defeat the weak while avoiding a battle against the strong. In most cases, however, a company plays safe and follows its bigger competitor using the same strategy. It intentionally or unintentionally ignores the factors that make the strategy of the competitor successful and presumes that the strategy taken by the competitor will also be effective to it without careful consideration. As a result, it unknowingly attempts to attack on the strength of the competitor.

It is important to know that specific products of each company make its strategy work well. Not only visible products, such as equipment and apparatus, but also invisible products, such as technological strength, sales forces, developmental power, and service capability, vary with the company. In the subprime lending disaster, you can say that every company involved took the same strategy seeking big profits and fell into an abyss together. It is an honor for a company to have its strategy imitated by another company, but the competitor’s strategy is the worse strategy for a company that imitates it. Any strategy does not work as soon as it is known to your competitor.

Japan provoked a reckless war against the U.S. without notice in 1941, and it was knocked into smithereens in 1945. Putting aside the fact that Japan had no chance of winning in terms of military strength, it is important to know that the U.S. mostly knew Japanese strategies beforehand because they were too much faithful to the textbook. During the age of provincial wars in Japan (1467-1615), warlords worked out their own strategies and fought against their enemies with the strategy full of originality. The greatest warlord is Nobunaga Oda (1534-1582), and both Hideyoshi Toyotomi (1536-1598) and Ieyasu Tokugawa (1542-1616) are his students. It is striking to know that none of the three warlords shared the same strategy.

During World War II, headquarters of the Imperial Japanese Army was staffed only with the bright graduates from the military academy. They all were too faithful to the textbook to construct a strategy full of originality. In addition, they were too proud and gentlemanly. A high-raking official in the headquarters reportedly told “It is not gentlemanly to sneak a look at strategies that the U.S. keeps in strict confidence.”

No. 16: Profit is the Cost to Keep Your Company Running

A medium-sized foodstuff wholesaler exclusive for restaurants applied for court protection in Tokyo. The company started business by supplying foodstuffs to privately-owned noodle shops and grew quite rapidly by opening its own prepared foods corner in food supermarkets. It accumulated lots of knowledge and know-how on the prepared foods business and received a rush of orders for consulting on how to run a prepared food corner from food supermarkets with which it had no business relations. The consulting business helped the company increase the presence in the foodstuff wholesale business greatly. With the growing profits from the consulting business, it expanded the foodstuff wholesale business and opened an account with nationally-known restaurant chains.

Leading national restaurant chains that have lots of outlets across the country are very attractive for foodstuff suppliers. Total sales are easily calculable by multiplying the sales per outlet and the number of outlets and they will automatically increase every time the national chain builds a new outlet. However, the market is highly competitive because many suppliers seek the opportunity to underprice the competitor to get big orders. No existing supplier can lower its guard under any circumstances, however big they may be.

Your competitor will replace you the next day should you be unable to respond to the national chain’s requirements immediately. Even if the national chain changes the menu all of sudden, you have to respond to the change immediately even though the stocked foodstuffs for delivery become dead stocks. All suppliers have no way but to accept strict conditions to keep doing business with national chains. Accordingly, their business is very much like a roundsman and the profit rate is extremely low.

It is not advisable for a medium-sized supplier to do business with a national chain. A medium-sized suppler should take note the following four points if it tries to open an account with a big national chain. (1) Every business cannot be free from economic fluctuations. You get big sales when economy is brisk, but you lose big sales when economy becomes stagnant. (2) Your presence in the market is lower than bigger competitors. Because of your low presence, you cannot have good bargain power to secure enough profit. Namely, your profit rate tends to become even lower.

(3) Market is liable to change all of sudden. A big chain may acquire another big chain, or it may be merged with another big chain. The resulting big chain may not appoint you as supplier. (4) Your credit rating is lower than bigger competitors. Because of your low credit rating, you cannot get favorable conditions from the bank and you have to pay higher interest rate than your bigger competitors. It is necessary to purchase a large quantity of goods at a lower price to supply a large quantity of goods at a lower price. This business practice is hardly possible for a medium-sized supplier.

As shown above, it is not a good idea for medium-sized companies to do business in a big market. They should pick a small market and increase the share in it by virtue of the ability to respond customer’s requirements without delay. Likewise, a big company should not do business in a small market. They should do business in a big market by virtue of economies of scale. This company should have focused on opening its own prepared foods corner in food market making the best use of its expertise. It is very important to keep in mind that profit is the cost to keep your company running.

No. 15: Military Strength is Proportionate to the Square of Troop Strength

A medium-sized supermarket chain headquartered in Tokyo filed for court protection. The biggest reason for its failure is that it extended the battle line too much. In the height of its prosperity, it had 20 outlets in four prefectures instead of operating 20 outlets in one prefecture. A medium-sized supermarket chain can hardly compete with nationally known big supermarket chains that have lots of outlets across the country in an extended battle line. Of course, you can find not a few medium-sized chains that compete successfully with national chains, but you have to note that they are successful because they are pursuing customer-oriented marketing in a geographically limited trade area.

Nobunaga Oda (1534-1582) accompanied by 3,000 soldiers defeated Yoshimoto Imagawa (1519-1560) accompanied by 30,000 soldiers in 1560. This is the “Battle in Okehazama” characterized by the famous phrase “A small number of soldiers defeated a large number of soldiers.” However, knowing well that the winning was a very lucky one, Oda never tried again to fight against an enemy that had two times the troop strength he had. Even the world-famous Napoleon never tried to fight against an enemy with two times the troop strength he had.

It is important to know that military strength is proportionate to the square of troop strength. That is, the ratio of one to two in troop strength is one to four in military strength. It is, therefore, advisable for a medium-sized company to limit the trade area geographically and compete with big companies in a geographically limited trade area. In business, troop strength can be defined as the number of employees, market share, sales, and capital of a company. That is, if your competitor has two times bigger market share as you have, it is hardly possible for you to beat the competitor. Suppose Toyota has 40% share, while Nissan has 20% share. The ratio of military strength of these companies is one to four not to one to two. It is hardly possible for Nissan to beat Toyota under the same business environment.

Japan has the Edo period (1603-1868) that was extremely peaceful. During this nearly 270 years of peaceful period, Japanese seemed to have abated the awareness of battle and cultivated somewhat strange aesthetic feeling about battle. They became impressed with the battle that an army with a small number of soldiers provoked against an army with a large number of soldiers. This aesthetic feeling culminated in extolling undauntable warlords like Nobunaga Oda and peaked at the end of the Japanese-Russo War (1904-1905) in which Japanese navy defeated overwhelmingly powerful Russian navy in the Japan Sea, and the overconfidence finally ended in the disaster in 1945.

The Zero fighter was unquestionably the world’s best fighter in the early stage of World War II. With its excellent maneuverability and powerful weaponry, it could down up to three Grumman F4F Wildcats should an ace pilot like Saburo Sakai maneuver it. But it is totally impossible for one Zero fighter to down four Grumman F4F Wildcats. What should the pilot of the Zero fighter do? Run away immediately.