In a world where the average lifespan of a company is less than 20 years, there is a country that defies the statistics.
Japan is home to most of the old companies in the world. The Shinise, as these ancient businesses are known, are considered national treasures and some of them have operated for more than a thousand years.
But what makes the country such an old business superpower?
There are more than 33,000 companies in Japan that are more than 100 years old, over 40% of the world’s total. Around 140 have existed for more than 500 years and at least 19 say they have operated for more than a thousand years.
Behind all these numbers are companies that have endured a lot of difficulties throughout the time period. But somehow, they all managed to survive.
How was this possible? There are some secrets behind this.
Business Field
One of the main reasons why there are so many old Japanese companies is the kind of business they are in. Usually, they are in areas of the economy that are connected to the lives of the communities they are based in.
Many of them produce products that have cultural importance like Taiko drums, paper lanterns, dolls, brushes and so on. Having this cultural attachment with the community gives them a continuous endorsement of tradition and endless consumers, making it harder for them to fail.
For an example, a company called Ichiwa, sells toasted mochi in Kyoto. The business started selling refreshment for travelers a thousand years ago. And it has morphed into what it is today. The company is connected with something very important: religion. It serves mainly the next-door shrine’s pilgrims.
So, as long as pilgrims continue to go to the shrine, Ichiwa will still have clients.
Another example is Tsuen Tea Kyoto. Tea is a very important part of Japanese culture and has a special meaning in pretty much every household. Or the construction company Kongo Gumi, which builds temples and shrines and it’s believed to be founded in the year 578.
All these companies profit from cultural traditions. Activities that do not depend solely on how well the economy goes. This characteristic gives them a higher chance of longevity.
Keeping The Business In The Family
Another common feature of these companies is that they are mainly family-owned businesses. And that means they share some other common characteristics.
Most of them operate according to what Japanese people call Kakun, which means family precepts.
Different from a normal company, which is supposed to maximize profit, scale up the size, market share and growth, these businesses operate on different priorities. They don’t aim to just make a profit, but also to care for their community and, most importantly, carry on existing.
Each generation has the responsibility to pass the business to the next. And giving up is not an option. Continuing the family business is a matter of pride and must be done no matter what.
So much so that these companies have a very high aversion to risks. And that’s due not only to fear of losing control of the business but also due to the many past crises that Japan has endured.
That is the reason why they often have very large cash reserves. Bulletproofing them against unexpected crises and avoiding risks of bankruptcy.
Among Japan’s oldest companies, even when they make profits, they do not increase their capital expenditure. Most keep business as usual, saving the extra profit for harder times.
On top of that, nowadays, if they need extra money, it’s fairly easy and cheap to get financing. Interest rates in Japan have been low for decades. But this is a more recent phenomenon.
Historically, family ties played a much more important role in keeping this business flow. In most cases, the company is inherited by the eldest son of the family.
In any other country, this is far from a guarantee of success. But in Japan, there is a big twist that makes family continuity a big advantage.
A Different Kind Of Adoption
Passing the company to the eldest son can be a bit like Russian roulette. Luckily, it won’t be fatal. But there is no guarantee that there is not a bullet on the other side. To avoid companies being inherited by less talented offspring, Japan has solved the situation with a very peculiar law.
If a business owner did not trust his firstborn son to take the helm, he can adopt a son and run the business.
Japan is famous for having a very low birth rate. One-child families are very common. And although daughters are allowed to inherit the business and there are successful Japanese businesswomen, the country still has a mostly male-centered culture.
But this is not a problem for families with only daughters when it comes to passing the family companies on.
Thanks to the adoption law, owners without a son planning their retirement can also look to their daughter’s potential husbands to take the company’s helm. This way, the company will stay in the family’s control. This kind of adoption is known in Japan as Mukoyoshi and some estimate that they represent more than 90% of the around 80 thousand adoptions per year in the country.
A study has shown that businesses run by adopted heirs consistently outperformed those run by blood heirs. The practice is widespread, not only in big companies but also in small and medium-size businesses as well.
Sometimes even families with biological sons will opt for the practice if they believe that nature has not been so good to their heir. This practice gives Japanese family businesses a talent pool as a professionally managed firm would have. And that’s a big advantage.
Suzuki Motors, the famous car maker, is one of the family businesses that took advantage of the practice. Osamu Suzuki, the long-term company’s president who retired in February 2021, was a Mukoyoshi. He was the fourth adopted son in a run to lead the company.
Under his tenure, Suzuki became a powerhouse and enjoyed decades of growth and success. This example shows that choosing a son for his ability to run the family business can be a successful strategy.
History and Geography
Japan is an island. This geographical characteristic meant for a long time that the country was isolated from neighbors and therefore needed to be self-sustainable. This created a very fertile case for companies to develop and prosper among its very long history.
It was especially true from the beginning of the 17th century, when Japan largely sealed itself off from the outside world in an isolationist foreign policy that lasted centuries and was known as Sakoku.
During this time, foreigners weren’t allowed in and Japanese people were not allowed out. These policies provided a stable business environment, although one can argue they are also bad in many ways.
By 1870, Japan became the first non-western country to industrialize. During this period, Japan already had well-developed agriculture and urban population that were considered sophisticated for the time.
This old and strong economy was a fertile scenario for businesses. Many of these ancient companies were created along the route between Tokyo and Kyoto, which was very busy and full of opportunities.
With a strong internal market and inside movement of people, companies were able to establish themselves early on.
Besides all these points, it is worth mentioning that a company surviving through millennials has probably more to do with circumstances than any specific ideas or measures.
But the fact that a lot of them are concentrated in Japan, proves that somehow cultural, economic and geographical characteristics have played a role in business longevity.
It is also important to point out that not all the thousand-year-old Japanese companies can trace their origins back to their founding. For many, there is no real proof of their history and one cannot confirm with facts what happened in all this time. But their timelines are generally accepted by the government, historians and scholars.
