No. 35: Secrets of Seven-Eleven’s growth (September 30, 2013)

Management:

Seven-Eleven creates excitements incessantly.

Since the first convenience store was opened in the early 1970s, convenience stores added new services and functions to satisfy social demand. Added services include installing an ATM inside the store and selling movie and concert tickets. As the number of added services increases, convenience stores have become a vital infrastructure in daily life. The Great East Japan Earthquake that occurred on March 11, 2011 made people renewed this recognition.  

The market leader Seven-Eleven worked out a new strategy for further growth. The company focuses on the senior generation and working women. It will open 1,600 stores in 2014 with an investment of 90 billion yen. Seven-Eleven has 15,800 stores in 42 prefectures at present and 37% share in terms of sales in 2012. With the 1,600 new stores, it plans to increase the share to 40% in 2014. To develop the market for the senior generation, it designates each store as the base of door-to-door delivery service. It introduced Toyota’s COMS to increase the efficiency of the door-to-door delivery service. It delivers such daily necessities as detergent and packed lunch to the households of the aged.

Women account for more than 40% of shoppers at Seven-Eleven stores, and Seven-Eleven successfully doubled the share of shoppers older than 60 years old to about 20% in five years. Making the best use of its delivery system, it started to deliver packed lunches to public junior high schools in Kanagawa Prefecture. Seven-Eleven has daily average sales of 668,000 yen per store, while the followers have average daily sales of a little more than 500,000 per store. Surprisingly enough, only 1% of all Seven-Eleven stores have daily sales of less than 400,000 yen, which barely prevents a store from being closed. The strength of Seven-Eleven lies in the ability to create original products unavailable from suppliers. Seven-Eleven places more importance on value than on price and launches high quality products that are little bit higher in price.

Japan has 50,000 convenience stores as of the fall of 2012, and some industrial sources say that the market is saturated. However, it is noteworthy that Seven-Eleven increased sales on a year-on-year basis for 13 months consecutively up to August 2013.

As Seven-Eleven shows, it is not too much to emphasize the importance of segmentalizing your market and focus on the promising markets with investment. The world is changing fast, and every business has to adapt itself to the change. As long as you develop new markets and scrap obsolete markets, the word “saturation” will not irritate you.  

Seven-Eleven regards a store as the base

of the door-to-door delivery service.

Shoppers get excited with Seven-Eleven's coffee.

No. 34: Developing business in the global market in the Unicharm way (September 21, 2013)

Management:

Unicharm is outstanding in the paper diaper business. It is expected to record sales of 580 billion yen this year. Because low birthrate and longevity dwindles the domestic market, the company has been energetic in developing foreign markets. Actually, its sales from foreign markets exceeded those from the Japanese domestic market for the first time in 2012. It is dominant in Indonesia with a share of more than 80% in the western part of Java. It will start to operate its third plant in Surabaya this year to make the Indonesian market even more solid. The new plant is part of its strategy to increase the share of diaper and sanitary goods from the current 20% to 30% in Asia. 

 Unicharm's products are selling fast in Asia.

Allying with local companies is vital for global competition.

Focusing on newly developed countries is a must for every Japanese manufacturer. Because economies of scale matters a lot to compete in the global market, it is critical even for Unicharm to compete with Proctor and Gamble (P&G) of the U.S. successfully. As a matter of fact, Unicharm projects to increase total sales three times over the current level to 1,600 billion yen in 2020. However, P&G has total sales of 8,000 billion yen, of which 1,600 billion yen come only from the divisions with which Unicharm has direct competition. To cultivate undeveloped markets in Asia, Unicharm merged companies in Vietnam and Myanmar. The M&A strategy allowed the company to have more than 50% share in Myanmar.

Diversify your market, not your business.

The Japanese adult diaper market grew to 140 billion yen in 2012, exceeding the baby diaper market. Unicharm has more than 50% in the adult diaper market. Since establishing a laboratory for the adult diaper market, the company has been developing the adult diaper market in coordination with medical and nursing-care facilities. These hardworking efforts made Unicharm successful in the adult diaper market from which P&G withdrew in 2007 and in which Kao is still struggling. This fact indicates the importance of diversifying your market by developing and sophisticating your products, instead of diversifying your business.

Establish and share the management objectives with employees around the world.

Unicharm has 20,000 employees around the world, of whom 80% are local people in foreign markets. For further growth in the global market, the company has to establish common recognition of the management objectives among all employees. For this purpose, the company introduced the management of resonance that ask every employee to think and work to creates results that exceed the simple addition of all employees. The SAPS management model was created for this purpose. S stands for schedule, A means action, P indicates performance, and the SAP returns to S (schedule). That is, the second S asks every employee to schedule next jobs and actions based on the past SAP. Ultimately, the SAPS model asks every employee to think by himself and act to develop the company. The keywords of the Unicharm management model can be summarized as follows:

Keywords to symbolize the Unicharm management model
Management of resonance	Every employee is asked to work in concert with others to exhibit unlimited power as if he creates resonance.
SAPS management model	Every employee is asked to observe the SAPS management model.
Enhancing communication through a social gathering	Every department holds a social gathering once a month at company expense to activate communication inside the department.
Unicharm way	Every employee is asked to carry a booklet in which Unicharm’s value and action guidelines are described.

The above Unicharm case illustrates the strategy that a company has to take into consideration for business expansion in the global market. 

Is everything going well, little princess?

 

No. 33: A company is too small to please everyone in the global market (June 29, 2013)

Management:

Panasonic will reportedly withdraw from the plasma TV business in 2014. The withdrawal is a wise decision because the company recorded a consolidated net loss of more than 700 billion yen two consecutive years. The cumulative investment of more than 500 billion yen will fall into oblivion with the discontinuation of the plasma TV business. Panasonic launched a plasma TV in 1997 with the hope that it would replace the cathode-ray tube TV. However, the plasma TV was outdone by the liquid crystal display (LCD) TV, and it has currently a market share of less than 10%. The extraordinary low market share means everything. (Photo) Panasonic's plant for plasma TVs. (Photo) The world largest plasma dispaly by Panasonic

Even though Panasonic is a huge company, it is totally useless and hardly possible to continue the plasma TV business and LCD TV business simultaneously, given the fact that the former is plagued by such an extremely low market share. The TV business is so huge, and TV is a commodity now. Even though Japanese TVs are famous for high quality, long durability, and multiple functions, they can hardly compete successfully with amazingly low-priced TVs from Korea and China. At present, the greatest TV market is not advanced countries but newly industrialized countries where price speaks for itself. The Panasonic case gives the lesson that a company is too small to please everyone in the global market. It can be said that Samsung of Korea, which focused on LCD TV to become the market leader, realized this fact earlier than Japanese electronics giants.

The same is true in the ongoing merger trend of the shipbuilding business. The merger between Kawasaki Heavy and Mitsui Engineering and  Shipbuilding did not materialize. In view of the growing competition and shrinking sales, pursuing economies of scale is vital for survival. As in the case of the TV business, Japan will clearly have to survive tough competition with strenuous efforts to launch competitively-priced products. It is a matter of concern that most Japanese companies are satisfied with the current status because they are increasing sales. However, what is most important is the share in the market. If a company decreased the share because competitors increased sales more than it did, it has to hold a meeting for reflection instead of a banquet for celebration. A decreased market share is a red signal asking a company to be alert. (Photo) A double hull ship built by Mitsui Engineering and Shipbuilding 

In Europe, it is not unusual that two companies headquartered in two different countries merge in pursuit of economies of sales. In a sense, today is the days of cross border alliance. Knowing the amazing growth of Samsung of Korea, Japan is somewhat slow in reorganizing and integrating its domestic business structure. Perhaps, it may originate from the Japanese culture that asks us Japanese to stick to the importance of “Never give up.” As time goes by, we have to change of our value to survive in the day of global competition. Like it or not, profits tend to concentrate in leading companies in the world market. As Jack Welch of GE told, “No company can survive unless it is the market leader or the market follower.” His thoughtful insight seems to give a warning about the current situation of Japanese companies. In this sense, Daikin that focuses on air-conditioners and develops its competitive edge with steady and continuous efforts to expand business worldwide seems to give a good example to follow.  

Daikin's latest air-conditioner 

featured by advanced technology

No. 32: Do not compete on price; what matters most is what products are available for 100 yen (June 17, 2013)

Marketing:

Customers get excited with low prices, but being cheap alone cannot keep them attracting forever. The 100-yen shop is widespread across the country because the strategy to sell every product for 100 yen hit a jackpot. The leading four 100-yen shop chains have 5,500 shops today and achieved combined sales of about 550 billion yen in 2012. They have increased the number of shops at nearly 20% per year during the past five years. One of the best selling products of the 100-yen shops is dry battery. Daiso, the market leader, sells about 150 million dry batteries per year, about six times more dry batteries sold by a leading convenience store chain. In a sense, dry battery is the product that symbolizes the 100-yen shop. As you sell more, you can get lower prices from manufacturers against a backdrop of the growing bargaining power, and subsequently the unit price will go down. This is an example of a virtuous cycle. However, the story is changing these days.

Seria that is the market follower is very energetic to develop new products in collaboration with manufacturers. They handle nearly 20,000 products, and introduce 500-600 new products per month constantly. Jointly-developed products accounted for 30-40% five years ago, but they account for nearly 90% now. Seria’s buyers go even to manufacturers’ plants in foreign countries to develop new products. Their efforts created such a noble products as cookware made of silicone, USB cable, and flashlight that uses LED. All of these products were unavailable for 100 yen in the past. Today, shoppers at 100-yen shops do not buy a product only because it is very cheap. That is, the industry has to cope with the decreasing impulse purchase. Consumers shop around and examine products by themselves, instead of stopping by at a 100-yen shop nearby to purchase a product only at a low price. Being cheap is no longer a strong merit of 100-yen shops. What matters most is what products they can make available at such a low price as 100 yen.

Today, you can find a very colorful lineup of manicure on the shelf of 100-yen shops. Do-Best supplies these manicure products to 100-yen shop chains. The company goes all the way to France to purchase the same materials used by famous French brands. Now you can purchase almost the same quality manicure sold 3,000 yen at a department store for only 100 yen at a 100-yen shop. The difference is the container and exterior package. The increased product competitiveness allowed some 100-shop chains to export their products to 15 countries including Korea and Myanmar.

The strengthened position of the 100-yen shop chains allowed them to be strict in the selection of location. For most commercial facilities, a 100-yen shop is vital to attract consumers. Seria, for example, declines a request for branching out from even a prime location. The company has established its own policy not to accept an offer unless it satisfies all their conditions, even though the offer comes from a prime location. The company examined about 300 locations and opened 60 shops in 2012. The company took away almost all the “100-yen shop” signs in its new shops to allow shoppers to enjoy shopping. The market leader Daiso also plans to change al the existing 2,700 shops to shops with posh atmosphere in five years. In addition, 100-yen shop chains are investing in logistics and an information system to prevent the out-of-stock condition.   

In the initial stage, low price is a strong weapon. Sooner or later, however, consumers get used to low prices. As manufacturers need innovations constantly, retailers need product development constantly. Offering services and products at a fixed price spread rapidly worldwide, as McDonald’s and Starbucks showed. But it is noteworthy that even these companies are exploring the way how to cultivate and develop the upmarket with upgraded products.   

The wonderful world of a 100-yen shop in Tokyo

No. 31: Focusing on promising business instead of pursuing the please-everyone policy (2/2) (June 11, 2013)

Management:
A company has to make the utmost efforts to develop its technology. Naturally, it is hard to keep creating innovations, but it harder to maintain the craftsmanship because every worker gets older and has to retire soon or later. Developing human resources who can inherit traditional craftsmanship is one of the big problems in heavy industries companies. As they fostered the diversification strategy, they decreased the number of recruits for the manufacturing scene. For example, the largest shipbuilding yard of Mitsubishi Heavy reduced the number of recruits starting in the mid-1970s. Accordingly, workers older than 50 accounted for over 60% in this shipbuilding yard in 2006, but they accounted for 25% in 2011. In exchange for the decreasing share of experienced workers, the share of workers younger than 20 increased to over 30%. It takes 10 years to develop human resources who can succeed craftsmanship of welding in the shipbuilding industry.

It is urgent for every Japanese shipbuilding companies to develop skilled workers in foreign countries to compete successfully with China and Korea. IHI is one step ahead of others, and it has developed more than 1,000 skilled workers in Vietnam and Indonesia. IHI enjoys a reputation of a company excel in developing skilled workers, and the good reputation worked very well to the company. A Brazilian shipbuilding company, Atlantico Sul Shipyard, changed its partner from Samsung Heavy to IHI. Negotiations on capital alliance are in progress between Atlantico Sul and IHI. In fact, Japan can be proud of its tradition to inherit craftsmanship from one generation to the next.

The shale gas revolution in the U.S. invited a worldwide attention and Japan will import shale gas from the U.S. In addition to shale gas, development of ocean resources will provide a tailwind to heavy industries companies. Ocean resources are expected to create a huge market for drilling ships and floating liquefied natural gas (FLNG) production facilities, and the market will increase about two times over the current level to 10 trillion yen by 2020. MODEC received an order from Malaysia for the design of a Malaysian FLNG last year. The total construction cost is estimated at 200 billion yen.

No company can be free from ups and downs in business, as the stock market. And most companies react nervously to the fluctuations, as most stockholders do. What is important for a company is to abandon unpromising business and focus on promising business, and the decision should be based on the technology including craftsmanship that it has accumulated. One of Japan’s leading consumer-electronics companies suffered from a huge loss as a result of its policy to please everyone. In the age of accelerating technological progress, no company can cover lots of business domains simultaneously however big it is. Develop technology and human resources that can inherit craftsmanship, while abandoning unpromising business fields. Unpromising business, in most cases, remains unpromising however hard you may try.  

A triangular ocean bed research vessel

Scientific deep sea drilling vessel (Chikyu: the Earth) 

No. 30: Focusing on promising business instead of pursuing the please-everyone policy (1/2) (June 10, 2013)

Management:

Japanese three leading heavy industry companies – Mitsubishi Heavy, Kawasaki Heavy, and IHI – launched new products one after another for diversification to maintain domestic employment after the so-called depression on shipbuilding. They are sometimes dubbed the three machinery department stores. Because of the please-everyone policy, they were not able to make enough investments in promising markets and products, and they increased interest-bearing debt dramatically. Until quite recently, they recorded a 2-3% operating profit rate, less than half of Hyundai Heavy Industries of Korea.

Mitsubishi Heavy changed this stream. It started to reform its business structure and introduced the “strategic business evaluation system” in 2011. It integrated business operations and withdrew unprofitable business operations. As a result, it reduced the interest-bearing debt from 1,600 billion yen in 2009 to 970 billion yen in the current fiscal year, less than 1,000 billion year for the first time in the past 17 years. It will achieve sales of 190 billion yen, which is close to the highest sales in the past, and increase the operating profit to 6%.

The promising business field for them is the exploration of ocean resources where they can utilize their shipbuilding technology. The world ocean resources business field is expected to increase two times over the current level to more than 10 trillion yen by 2020, mainly thanks to the construction of drilling ships and offshore production facilities of liquefied natural gas. Mitsubishi Heavy delivered four resource exploration ships to Norway for about 100 billion yen. Its technology to minimize the engine noise and vibration was helpful for the successful order intake. 

It is not too much to emphasize the importance of technology. Hitachi Zosen delivered its reactor vessel to Sasol of South Africa. A reactor vessel is the core equipment of the gas to liquid (GTL). It is 50 m tall, and it weights nearly 200 tons. Precise welding is indispensable to building a reactor vessel. Hitachi Zosen’s technology to bend and weld a hug thick steel plate will allow the company to keep growing. The company dubs itself a shipbuilding company on land. Stick to the technology that you have accumulated, and you can open up the road for further growth.

Hitachi Zosen's reactor vessel 

No. 29: Publishing e-books and taking in people in general simultaneously is vital to spread Japanese culture (May 20, 2013)

Marketing:

Mickey Mouse is unquestionably the world’s most famous character, but Japan’s Hello Kitty is growing popular even in the U.S., the home country of Mickey Mouse. Sanrio, the creator of Kitty, reportedly renewed the highest operating profit in fiscal ended March 2013 and will supposedly renew it again in fiscal ending March 2014. Likewise, Japan’s two mobile game developers, DeNA and Gree, are growing very fast these days.

Cool Japan is a national policy to dispatch Japanese culture to the world. However, Japan has to overcome several headaches. One of them is unauthorized copies. In the world, underground websites get data on the latest issues of Japanese comics one week before they are sold at Japanese booksellers and put their unauthorized English versions on the Internet in just two days. That is, foreign readers read the latest contents free well before Japanese readers buy their favorite comics at a bookseller. Several Japanese publishers started to distribute e-books in alliance with foreign Internet companies, and publish a new issue simultaneously both at home and abroad. For example, an American venture, Crunchyroll, has been offering the charge system since 2009. The company has now 200,000 members who can read all comics at a flat rate of 6.55 dollars per month. As far as comics are concerned, the strategy to publish e-books and offer them to members all over the world simultaneously at a flat rate in alliance foreign Internet service companies has become vital.

The Japanese government is trying hard to keep foreign people informed of Japanese culture. Actually, Japanese contents successfully got fans called “Otaku (Fanatics)” worldwide. In fact, there are lots of people enchanted with Japanese culture, and it seems that the Japanese content industry is doing well in the export business. The fact remains that it exports only 5% of its total sales of 12 trillion yen. One of the reasons for the stagnant export value is the lack of efforts to increase fans. Japanese contents companies have been increasing fans with a focus on Otaku (fanatics). However, it is time to shift the focus from Otaku to non Otaku, who can be called people in general, to spread Japanese culture worldwide. Think about Nintendo’s strategy. Nintendo recorded a remarkable sales increase by taking in people uninterested in video games.  

The above story can apply not only to a country but also to a company. It is vital for every company to increase customers by strengthening its technology and service, responding to the change of market situation. In the case of the content industry, creativity matters most. Companies successful in trying to keep people excited with new contents will survive. As Peter Drucker taught us, “The purpose of business is to create and keep a customer.”  

 Is Japan cool?