No. 18: Problem with a Rapid Growth in Business (November 12, 2010)

A long-established company in the bedclothes industry applied for court protection in Japan. This company achieved a rapid growth thanks to its strategy to introduce high-end bedclothes bearing the names of famous fashion designers into the market, that is, it successfully imported fashionability to the bedclothes business. The story of this company from the beginning of the rapid growth to the bankruptcy tells you about the high risk of high-cost structure common to the brand business besides disclosing the inability of this company to foresee the change of consumer behavior and the dynamism of distribution channels. If a company pursues economies of scale incessantly to achieve a rapid growth without improving the high-cost structure, it will face a big problem soon or later.

Economy does not seem to recover immediately in industrialized countries. In this condition, many companies hastily try to reduce production cost by means of economies of scale to satisfy consumers’ demand for low commodity prices. Capital investment to increase production capacity is vital to economies of scale. Expanding production capacity in a short period of time usually means a big increase of debt payable. Increased debt payable increases interest payment, and naturally, decreases capital adequacy ratio. Because unlisted medium-sized companies cannot procure capital in the market, they have only two ways to procure capital. Management executives increase the capital by themselves, and the company saves net profit after tax. Knowing the risk of increasing interest payment, most companies are enchanted by a rapid sales increase without improving the high-cost structure. And they diversify their business to get quick returns and increase the number of distribution channels.

In short, rapid sales increase by means of economies of scale alone decreases the capital adequacy ratio. If you build a new plant, expand facilities, and install new equipment, you have to come up with increasing expenses associated with the increasing production capacity and increasing stocks not to mention increasing labor cost. That is, repayment of principal and interest grows bigger and capital adequacy ratio decreases. In these conditions, a company has cash-flow problems and a high probability of bankruptcy due to a sudden change of business environment even though its results are in black. This situation is symbolized by a medium-sized company that achieves a rapid growth, builds a fabulous company building, increases production capacity, employs a large number of new workers, and suddenly faces financial difficulties because of a sudden business slowdown.

If a company faces this situation, it had better be realistic and avoid business beyond its capability, namely abandon the idea of expanding the business and take only highly profitable orders, and reduce the amount to settle by draft. Reducing settlement by draft improves cash management and increases the capital adequacy ratio. Generally speaking, if a company increases the capital adequacy ratio to above 30%, it can settle purchases only in cash. As the same time, it is necessary to abandon very small customers by following the four principles. They are not to sell on credit, not to give discount, not to deliver an order, and not to pay a visit for sales activities. Always, you have to keep in mind the risk associated with a rapid business expansion.

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.

No. 14: Build a New and Better Distribution Channel

A prestigious Japanese sake brewery filed for court protection. This sake brewery is famous for the brand sake supplied to the Emperor. The major reason of the failure is that people drink Japanese sake less in these days. However, the president cannot be free from the responsibility of the failure because not a few Japanese sake breweries are recording good results despite the dwindling sake consumption. No companies can survive unless they make strenuous efforts to sell their products by themselves. Every company should know that it is no longer possible to survive only by producing the established products and distribute them only through the established distribution channels. Innovation not only in production but also in distribution is vital for survival.

In the magazine report on the failure, the president of this sake brewery who studied engineering in college talked much about production and little about marketing in his remorse. This indicates the problem that many engineering-educated presidents have in common. All that he has in his mind is to produce excellent quality sake from excellent quality rice to maintain the tradition. His attitude should be praised, but he is lacking in the perspective to build a new distribution channel. However excellent his sake is, its sales will not grow unless he builds a new distribution channel suitable to the new age. Youth do not drink as their parents did in the past. Many liquor shops used to sell sake to salaried workers on a cup basis at the shopfront in Japan. Salaried workers used to grab a drink at a liquor shop on their way home, but no more.

He could have realized the necessity to build a new distribution channel if he had studied in detail how consumers purchased sake and where they drank sake. He should have realized much earlier the mistake to stick only with the long-established distribution channel. If he had worked on expanding business abroad, he could have taken advantage of the growing popularity of Japanese cuisines in foreign countries. Every company needs to abandon the idea to stick only with the distributors with whom it has been enjoying long and established business relations without trying to build a new and better distribution channel. Some companies may say, “We cannot do such a ruthless thing.” These companies will be wiped out from the market in the long run. It is not a ruthless idea to abandon the distributor that cannot cope with changes of the times.

In Japan, there was a famous phrase “Toyota’s marketing and Nissan’s technology” in the past. Possibly fascinated by this euphonious phrase, Nissan emphasized technology because it thought technologically excellent cars would sell fast. Nissan should have realized that marketing is much more difficult than production. While production is internal work, marketing is external work. No automaker can satisfy the infinite requirements imposed by consumers, no matter how big it is. Even the almighty Toyota cannot order a customer to buy a Toyota. Even Toyota salespeople can at most say, “We have built this car by getting together our wisdom and technology. Please check is closely. We would appreciate it very much if you would be interested in this car and purchase one.”

The story of the prestigious sake brewery tells the sorrow of an engineering-educated president who did not sell his products by himself and could not abandon the Ptolemaic theory that the distributor was selling his products very hard for him.

No. 13: Listen to the Voice of the Market, First

A municipality in the Tokyo Metropolitan area started to commercialize brandy using pears that are its signature agricultural products, but things did not go well as expected. It publicly sought a person to preside this business and recruited a competent person, but even he did not succeeded in making a turnaround. The greatest problem with this case is that the municipality did not ask beforehand whether or not pear brandy would sell fast enough to make the business viable. As this case shows, many municipalities try to commercialize products using their signature agricultural products, but few of them succeed.

It is obvious that some one already tried to commercialize pear brandy in the past and proved that it does not sell fast enough to keep the business running. Since ancient times, human has been trying to brew various kinds of fruits to produce original liquors. As the result of trial and error, only the existing products are available on the market. The same is true of jams. Many municipalities make efforts to commercialize pear jam and peach jam, but in vain.

To make the matter worse, agricultural products are greatly at the mercy of market conditions. You cannot stop producing liquors and jams only because the purchase cost of agricultural products is high, keeping the production equipment idle. It may be possible to market pear brandy on a small scale as a gift for sightseers. But, it is hardly possible to market it as business. To be rather modest, the municipality should not have tried to commercialize a product that large companies do not try to commercialize.

Quite some time ago, local brand beers created a sensation in Japan. Many municipalities joined the boom and introduce their own brand beers one after another. Today, we do not hear much about them. In this case, beer is beer. The point is how to differentiate your local brand beers from Asahi’s Super Dry and Kirin’s Lager. The story about pear brandy is totally different from the story about the local brand beer.

Today, every technology is highly advanced and product development is brutally fierce. Therefore, it is vital to change thought from using the signature agricultural product as it is to growing specific agricultural product best suitable to a product to develop. Otherwise, it is hardly possible to create products that satisfy consumers’ requirements. Think about grapes. The grapes from which wine is made are the result of selective breeding. In addition, it is important to know that the technology to produce best fruit is quite different from the technology to produce wonderful wine using the best grape. You had better not think illogically that you can produce wonderful wine only if you can get the best grape for wine.

Because business is the activities that involve the market and consumers, you always need to look into various aspects of the market and consumers. That is, you need to build a product concept by listening to the voice of the market and observe market trend in detail. It is not advisable to build a product concept only on the basis of your self-centered view, however wonderful your technology and know-how may be.

No. 12: On future prediction

Figures based on future prediction attract wide attention as an election approaches and campaigns grow furious. Nothing is more appealing to people than figures based on future prediction. Many intellectuals predict the future, and mass media release their predictions. Listening to the reports released by mass media, people believe that an upheaval will come soon and a reform will change the world soon.

People become optimistic or pessimistic depending on the prediction. In the days when PCs started to increase the presence in business, many intellectuals predicted the arrival of a paperless society. However, you still need to depend on hard copy documents in your business. Several years ago when gasoline prices soared, many intellectuals predicted that gasoline price would exceed 200 yen per liter. It is about 130 yen per liter now. All predictions do not necessarily come true. Even the famous book “The Limits to Growth” written by the Club of Rome does not have as high a hitting ratio as people expect.

You have to note that the future is not an extension of present. As the great Peter Drucker told us, the only thing we know about the future is that it is going to be different. It is possible to predict the future of a natural phenomenon to a certain degree of accuracy. If you plant a seeding, it will certainly put forth ears as time goes by. However, you can rarely know the future precisely seeing what is going on now. A temporal enthusiastic trend has the possibility to become a thing of the past. Even hot water in a kettle will become water unless it is heated continuously. In addition, no phenomenon will stay in the same direction. People those who lived in a lap of luxury during the bubble yell out “We need a society without disparity” as soon as the bubble bursts, but they expect next bubble as soon as economy shows the sign of recovery.

No. 11: No Company Can Go Up to the Second Floor in One Stride

You need to win in business because business is a war. Otherwise, you will be beaten by your competitors. In this sense, you may sometimes need a gimmick to break them down. However, the gimmick unsupported by sufficient amount of financial resources will definitely fade away as time goes by. Vainglory is a big no-no in business. Even if you create a flashy gimmick, gilt comes off sooner or later. A company that attracted wide attention in the mold-making industry filed for bankruptcy protection under the Civil Rehabilitation Law with about 15 billion yen (about US$160 million) in debt.

When you see the 20 years’ history of this company from the foundation to the bankruptcy, you can see the stereotype story that emerging companies have in common. The company developed innovative technology and achieved a rapid increase in sales. Delighted with the rapid sales increase, it moved its headquarters to an expensive building located in the super expensive business district in Tokyo. It decked the office with expensive furniture as if it looked like a palace, and attracted excellent engineers with the fabulous working conditions on the assumption that its business will grow continuously.

The company president was pretty sure about eternal development of his company. He pressed his employees to focus on developing state-of-the-art technology and asked them to develop the technology that is the best or the second best in the industry. He must have great respect for GE’s Jack Welch, but it is not a good idea for a small company to do what the world’s best company does. This company spent nearly 50% of its sales on building an unmanned plant to show its excellent technology.

Apart from his somewhat optimistic prediction, this company depended on the automobile market for 60% of its sales. The ratio was clearly too high. If the target market grows continuously, no company comes across a tragedy as long as it has highly sophisticated technology vital to the market. However, things will not necessarily go well as you expect. Even Toyota Motor is not free from economic fluctuations.

Empirically, it is advisable for a company not to depend on one market for more than 20% of its sales. Even if a company loses sales from one market entirely, it supposedly can manage to make up for the loss as long as the ratio is less than 20%. It is vital for a company to upgrade its technology continuously and diversify the target market. At the same time, it needs to accumulate equity capital to prepare for an economic downturn. Fixed costs, such as employment cost and rent, cannot be reduced even if sales go down. In this sense, a company president should have recognized the necessity to know how to protect his company as well as how to develop it.

As the great Konosuke Matsushita who is the founder of Panasonic said, “A company has to make efforts to go up to the second floor, but no company can go up to the second floor in one stride.”

No. 10: Consumption trends change faster than foreseen

Domestic demand in Japan is not growing fast despite the government shouty announcement, “Expand domestic demand.” The retail industry prompted M&A to materialize economies of scale under the assumption that domestic demand will expand given the government’s dramatic drive. However, the fact is that demand is not expanding fast enough, and the M&A strategy is not working well. Management integration of leading department stores attracted public attention, none of them are reported to have improved their results dramatically. Consumers rush to department stores to buy low-priced products offered by the tenant retailers. This is not what an M&A is intended for. After management integration, two leading department stores introduced the central buying system by headquarters, but this system is not working well because demand varies with region considerably.

You may say that retailers are not successful in M&A because they took the government’s Ptolemaic policy based on the assumption that Japan is Tokyo-centered at face value. No companies can achieve an M&A easily only by pursuing economies of scale, even though they are in the same industry. As the negotiations between Kirin Brewery and Suntory showed, the bigger the two companies are, the more difficult an M&A is. Consumption trends change with lots of factors. The factors are getting more diverse and changing at an accelerating pace. Even though an M&A successfully increases management efficiency, it will not be as effective as originally planned if it fails to cope with changes of consumption trends.

No. 9: Do not rely too much on a big company

Big companies are decreasing the number of their suppliers in view of the current stagnant economy in Japan, and many suppliers are struggling to overcome the hard times. It is easily imaginable that they are surprised to have their business with big companies discontinued. They must have been optimistic about future business prospect because they are doing business with a big company. Even big companies are not free from stagnant economy. Because they are big, they have to try hard to streamline operations to secure necessary profits. They first lay off employers, and second decrease the number of suppliers.

What supplier is the first to be wiped out? Unquestionably, it is the supplier that has the smallest share in the supply market. Suppliers with a small share cannot satisfy the requirements of a big company in a short period of time when economy recovers in the future. There is no room to give consideration to human empathy. The decision to discontinue business transactions does not allow for any delay. No purchase agent of a big company wishes to lose a job as a salaried worker. As always, human is self-centered.

Many small companies are trying hard to do business with a big company by some means or other. However, they need to remember that big companies have to make a ruthless decision purely because they are big. They have to support the livelihood of many employees. There are three reasons why a small company wishes to enter into business relations with a big company. Every three reason is quite understandable, but it has pros and cons.

(1) As the big company is financially strong, the small company does not have to worry about debt collection. How do you explain the GM case? Even a super big company goes into bankrupt. In addition, if you establish business relations with a big company, you need to accept long drafts. Sometimes, you need to wait for 180 days to encash a draft. It is not a good idea to receive such a long draft in terms of cash management. You need to pay salary to your employees in cash for 180 days before you can encash the draft.

(2) Because an order is big, it allows a small company to have a big sales increase. You have to examine the profit rate of a big order you get from a big company. It must be extraordinary low, though the profit in value is rather fancy. If you get a big order, you have to cancel small orders from small companies to execute the big order. Suppose a big order from a big company discontinues all of sudden, you cannot escape from leaving your production resources idle. That is, you are not free from great fluctuations in operations if you rely too much on a big order. If you lose the big company, you will have to ask small companies to increase business volume despite the fact that you cancelled their orders in the past to execute a big order from a big company.

(3) Because a big company is famous nationwide, a small company can gain prestige. Most small companies think that they can maintain business relations with a big company forever once it succeeds in establishing business relations with them, and employees get intoxicated by the excitement to do business with a big company. Delighted with a happy future, they construct a new building and employ many workers to be prepared for a further increase of business. That is, they go beyond the border between fiction and reality. It is not unusual that a small company suffers from financial trouble once it constructs a new building to commemorate the steep business growth realized by the business with a big company.

It is said that a crab digs a hole suitable to its shell. That is, people act in ways that show their worth. It is the right strategy for a small company to do business with a small company. It is not advisable to reduce profit as much as possible to do business with a big company. Small companies should be very cautious about starting to do business with a big company unless it is equipped with technology unique in the world.

If a small company cannot secure a necessary profit rate from the business with a big company, it had better give up the idea of doing business with a big company without hesitation and think that it is not competent enough to do business with a big company, and make further efforts to develop its competitive edge.

No. 8: Stay away from the trendy business.

The Japanese government started the specified health examination as a measure for metabolic syndrome about two years ago. Buck then, consumption of products related to dieting was a social phenomenon, but the enthusiasm consumers showed two years ago has faded away drastically these days. Neither instruments to strengthen abdominal muscle nor products to prevent metabolic syndrome sell fast today. Seeing the trend of government policy, many companies rush into new business that seems promising to keep abreast of others. Today, many companies go into business for children in anticipation of the benefits for children to be provided by the government. Taking advantage of the gourmet boom, an increasing number of companies branch out into the gourmet business. When the zeal subsides, a company that has the smallest sales is the first to quit the market, and most companies quit the market with reflective consciousness that they should have exerted much energy in the core business. In whatever kind of business, only a few companies that went into the market in the initial stage and that have enough capital to compete in the highly competitive market can survive. When the zeal ends, mass medial makes a lot of noise without mentioning the fact that it fed the boom. No one can tell precisely what the policy enacted only for the election will be if the regime changes. It is a perfect opportunity for a company to beat its competitors if they branch into trendy business that offers no synergy effect.

No. 7: You can get through a crisis as long as you stick with technology.

Apple has been growing in full flood. Its aggregate market value is about 20 trillion yen that is more than six times as much as that of Panasonic and Sony, and it is approaching Microsoft’s aggregate market value of about 23 trillion yen. The source of Apple’s tremendous success lies in its identity that no other company can imitate. It is only in the high-growth period that a company can increase its revenue by doing the same thing that other are doing. The true competitive edge lies in the uncompromising pursuit of identity. Then, what matters most is to decide in which area a company should pursue its identity. An old company that produces gold and silver leaves and flours reduced the factory utilization rate to as low as 20% because the auto-related business slackened in 2008. The auto-related business accounted for 60% of the revenue of this company founded in 1700. This long-established company desperately looked for the field in which its traditional technology would be utilized, and decided to venture into the battery business. The company exhibited its self-developed perforated electrolytic copper foils in the secondary battery exhibition held last March. It products attracted wide attention from the visitors as the state-of-the-art technology developed by a well-established company. President of this company said with confidence, “We are not outdone by others in the technology to thin and break up a thing. As long as we excel others in this technology, we can get through a crisis.” The company that drops its guard loses in technology innovation. When your company has a difficult time, every company also has a difficult time. Knowing that your competitors are making more efforts that you are making, you have to make strenuous and unremitting efforts. Otherwise, you will be left in the dust created by your competitors.

No. 6: Essential of business

Starbucks moved into the instant coffee business and introduced packaged instant coffee under the brand name of VIA in the U.S. and Canada. As part of the strategy to shore up the sluggish sales cause by stagnant economy worldwide, the company introduced packaged instant coffee for less than one dollar per package, appealing the low price and convenience to consumers. The company sells this product not only at its coffee shops but also at retailers. When the main business slackens, many companies often plan to sell a new product outside of its business domain to the existing customers, and they mostly introduce a reasonably-priced product in the initial stage. Occasionally, however, the popular-priced product impairs the brand image that the company established after many years’ hardship.

A company is often too proud to ask itself if a new product that bears the same brand name but does not belong to the existing business domain attracts consumers. Starbucks coffee is not the same coffee offered by McDonald’s. The former is higher in price than the latter because consumer can enjoy it in the refined and polished atmosphere in exchange for a little bit higher price. That is, Starbucks’ coffee is a product organized by coffee and the atmosphere created by customers. You can drink instant coffee in office and extract coffee using imported coffee beans at home. What is more, Starbucks has to consider seriously the profit margin it has to pay to distributors, wholesalers, and retailers. It is absolutely necessary to give them a good profit margin to make them profitable. None of the three players are interested in a product that cannot give them a fancy profit margin. That is, a low-priced product cannot impress them well because it gives them a low profit margin. It is important to know that marketing packaged instant coffee through the distribution channel is essentially different from making consumers enjoy delicious coffee in the well-organized atmosphere.

No. 5: Establish a regional brand

Dentsu, Japan’s giant ad agency, will launch business to help regional organizations and tourism-related groups establish a regional brand. The company will subcontract several operations that include conducting sightseeing resources survey and image research, establishing a regional brand to attract more tourists, and constructing a system to dispatch regional information. In the Japanese political world, Diet members had once heated discussions on establishing a new regional system in Japan, but the discussions are now a thing of past. Instead, regional vitalization has grown to be a hot issue in Japan. An increasing number of prefectures opened their antenna shops inside Tokyo, and some of them plan to open an integrated antenna shop abroad in cooperation. They are, however, not beyond the boundary of an outlet that markets regional products. The antenna shop has its own limit should it be defined as a commercial museum.

Everyone can see photos and images of every corner of the world on the Internet without going there and can buy products of regions across Japan easily via the Internet. Because economy is sluggish, it is a vital strategy to let people visit the region and have experiences they cannot enjoy unless they go there. That is, change of thought from demand pull to market creating is indispensable. The underlying concepts are market segmentation and differentiation. Segment a prefecture into municipalities, emphasize the identity of each municipality, and dispatch information. If each prefecture defines the information recipient as people all over the world, it can offer lots of varieties of subjects attractive to them. In that sense, a brand name that is short and impressive enough to strike people’s hearts like New York’s Big Apple is indispensable.

No. 4: On the cluster phenomenon

Samsung Electronics of Korea has been growing remarkably by focusing its management resources on the LCD TV that incorporates light-emitting diodes for backlight. Because the LCD TV is positioned as a high-end product, it is rarely subject to discount besides being rather profitable. In the North American market, the LCD TV allows Samsung Electronics to have a higher average sales price than Sony in the North American market in the flat-screen TV business. When we Japanese see advertising on the TV, we presume that Japanese makers are dominant in the world market. However, the fact is that Samsung is the market leader with 24% share. It is followed by Sony with 15%, LG Electronics of Korea with 12%, and Sharp with 8%. The leading four makers account for nearly 60% in the world market.

Panasonic is behind Samsung in the world market, and its two strategies aiming at the world market, “Focus on the world as one market” and “Provide all electronics to every household,” are not working well. In fact, Panasonic’s ratio of foreign sales is 46%, while Sony and Samsung secure more than 80% of sales from the foreign market. At the present time, it is clear that Samsung strategy to sell selected items in the world market is working better. As element technology grows more sophisticated and its base grows wider, it grown more conspicuous that a specific area specializes in a certain technology, and companies involved in the industry cluster. For example, the software industry clusters in the U.S., and the flat screen TV clusters in Japan and Korea. As competition of technology development intensifies, focusing on specific technological field grows more important and the cluster phenomenon will grow more conspicuous.

No. 3: What is necessary in business

All products are destined to be wiped out from the market, and it is imperative to continue putting new products on the market incessantly. Creative destruction is out of the question if you think regretfully of products. The same is true of business. Your business may be replaced by new innovate business some time in the future. Keep innovating and have courage to abandon unprofitable and unpromising business as needed. However, people are conservative by nature and liable to avoid a change.

There are three major obstacles to the decision on withdrawal. The greatest obstacle is rivalry. Think about Toyota and Nissan back in 1999. Back then, Toyota was called Toyota Bank because it was a super excellent cash-rich company, while Nissan had as much as 2 trillion yen interest-bearing debts. Even with these huge deficits, Nissan gave a big command to employees, asking them to try harder to catch up with and overtake Toyota. Because of this reckless command, Nissan finally had no way left but to ask Renault for financial help. What Nissan should have done is to abandon unsalable and unprofitable models, but it couldn’t.

The second is sticking with the traditional business domain, saying that this is our company’s DNA. Railway companies faded out in the U.S. in the early 20th century because they defined their business as transportation. Japan’s the great Ichizo Kobayashi, founder of Hankyu Railway, defined the railways business as the business to provide people with communication places materialized by the railway. He famously said, “If you need a customer, you try to create a customer.” His comment has something in common with Peter Drucker’s famous definition: “Business is to create and keep a customer.”

The third is the perceived notion that this business will be profitable some day in the future. This is often observed in medium-sized companies, and the business is usually a pet project of the president. Often, the president grumbles about the stagnant sales and attributes them to the insufficient efforts of his employees. The fact remains, however, that employees are trying very hard to make the president happy, but in vain.

Every company has it own capacity in terms of financial resources, management resources, etc. Even Toyota does not have infinite capacity. The super computer has grown competent enough to beat the world champion in chess. This is not a surprise. The competency of a computer increases as the data stored inside it increases. If a computer becomes too small to store the increasing data, what you need to do is to build a bigger and powerful computer. However, a human brain has a totally different story from a computer. No brain can be made bigger, nor can it be made more powerful over a short amount of time. Accordingly, human has no way but to abandon old pieces of information to incorporate new pieces of information.

Every company wishes to beat its competitors in its traditional business domain with products that sell forever. However, this hardly comes true. What is important is to analyze the reality and make a change as needed. Management is reorganizing a company to cope with ever-changing business environment.

No. 2: Creativity and Serendipity

The employment situation hardly improves in Japan. As the current government promotes policies that pay little attention to the supply side, company’s competitive edge has deteriorated, and lots of seniors scheduled to graduate from college next spring have been spending gloomy days because they have never got an official job offer. This creates a grave situation and affects their future badly. Under the current business conditions, companies find it hard to increase employments and try to find a means of survival by creating innovation. As a result, business management is growing to be a complex system endlessly. In the days like this, serendipity that is the ability to make an accidental discovery grows important. It is vital to recombine multiple matters and correlate them in the process to create innovation. The harder it is to find the correlations, the bigger intellectual gaps needs to be filled for recombination. Accordingly, the role played by what is unforeseen grows bigger. Simply put, serendipity is the ability to find unforeseen issues, and it is of great help to the evolution of living matters. Evolution means being creative, and the driving force of creativity is random by nature and redundancy. Therefore, it is not a good idea to eliminate the redundancy to the utmost limit. Without redundancy, living matters optimize themselves only to the present environment, and they are tapped once they fail to implement a plan faithfully.

No. 1: Marketing Speaks for Itself

NTT DoCoMo starts to standardize the core mobile phone software in collaboration with five Japanese companies from the consumer-electronics industry and semiconductor industry with a view to expanding the technology infrastructure and changing greatly the Japanese mobile phone business frequently dubbed the “Galapagos” phenomenon. The company carried out the same kind of strategy aiming at the global market 10 years ago. Back then, Apple achieved tremendous success in the global market, while DoCoMo withdrew from the global market. What decided their outcomes is marketing. Apple allied with carriers worldwide and opened the infrastructure of information distribution to them, while DoCoMo allied with mobile phone makers and contents developers. In fact, DoCoMo failed to show presence in the global market, and the idiosyncrasy of the Japanese market grew more conspicuous. This time the five companies asked to collaborate with DoCoMo are all Japanese and so-called DoCoMo’s family companies. Part of the base of Apple’s technology is made up of Sony’s Walkman and DoCoMo’s i-mode. The difference in strategy between Apple focusing on the global market and DoCoMo protecting the right and interest of its family companies is great.