International Business Day Rotterdam 2012 Prof Kiyoshi Hori

Japanese SMEs and Japanese SMEs and EntrepreneursEntrepreneurs

in the 21in the 21stst Century Century

Kiyoshi HORIKiyoshi HORIProfessor of Industrial OrganizationProfessor of Industrial Organization

and SME studies,and SME studies,J.F.Oberlin University, Tokyo, Japan.J.F.Oberlin University, Tokyo, Japan.

Self-introduction of the speakerSelf-introduction of the speaker

Born in Osaka, Japan in 1962.Born in Osaka, Japan in 1962.

Graduated from Keio University in 1985.Graduated from Keio University in 1985.

Studied in Erasmus University Rotterdam Studied in Erasmus University Rotterdam as the first Japanese exchange student in as the first Japanese exchange student in 1989 (for one semester at RSM.)1989 (for one semester at RSM.)

Started my career as a professor in 1990Started my career as a professor in 1990

Visiting researcher at Erasmus in 2000Visiting researcher at Erasmus in 2000

Today…,

Hori offers you some examples of Japanese SMEs and entrepreneurs.

Hori would like the students here to think about the following questions.– How can you be a successful entrepreneur?– How can you find a good business chance?

CONTENTSCONTENTS

1.1. Introduction: a small businessIntroduction: a small business2.2. Current Issues on Japanese Economy Current Issues on Japanese Economy

and Societyand Society3.3. The Nature of EntrepreneursThe Nature of Entrepreneurs4.4. How can you be a successful How can you be a successful

entrepreneur?entrepreneur?

Part 1Introduction: a small business

- Very small firm with 2 employees- Located in really rural area- Sales 2.4 million Euros per year!

Introduction: a small business

Name: Irodori Inc.

Headquarter: Kamikatsu-town, Tokushima

Capital: 10 million yens

Employees: 2

Annual Sales: 260 million yens (EUR 2.4 million)

Tokyo

Kamikatsu,Tokushima Pref.

NagoyaOsaka

Landscape of Kamikatsu

90% of Kamikatsu-town is mountain.90% of Kamikatsu-town is mountain.

Landscape of Kamikatsu

90% of Kamikatsu-town is mountain.90% of Kamikatsu-town is mountain.

50% of total population is 65 or 50% of total population is 65 or older.older.

Don’t you think that…

It is impossible to start a business in a rural area, because it is hard to find some useful resources there.Local governments of rural areas have to invite some resources from outside of the areas in order to stimulate their local economies.The older you are, the less entrepreneurial you are.

Leaves decorating Dishes

Their “Products”

In Kamikatsu-town,

GrandmothersGrandmothers

Grandmothers clime every Grandmothers clime every mountain,mountain,

pick up some leaves,pick up some leaves,

pack the leaves and deliver them.pack the leaves and deliver them.

Their “Products”

Tomoji Yokoishi, CEO of IrodoriTomoji Yokoishi, CEO of Irodori

Yokoishi offers the grandmothers…Yokoishi offers the grandmothers…

market trends and information.market trends and information.

It is the basic business of Irodori.It is the basic business of Irodori.

She is 89, and earns JPY 10 million She is 89, and earns JPY 10 million (EUR 90,000) every year.(EUR 90,000) every year.

Grandmothers enjoywith their work!

Some of them not only pick leaves in Some of them not only pick leaves in the mountains,the mountains,

but also invest their money to set up but also invest their money to set up some facilities to foster leaves.some facilities to foster leaves.

She can pick up maple leaves at any She can pick up maple leaves at any seasons.seasons.

She picks up some leaves at the She picks up some leaves at the garden of her residence,garden of her residence,

and arranges them a little bit,and arranges them a little bit,

and arranges them a little bit,and arranges them a little bit,

and makes her own products!and makes her own products!

and makes her own products!and makes her own products!

and makes her own products!and makes her own products!

(http://www.irodori.co.jp/)

They have 330 items.They have 330 items.

““The harder you work, the more you The harder you work, the more you get money.”get money.”

Business model of Irodori

Irodori

AgriculturalAssociation

Market Informatio

n

Market Informatio

n

Shipping

Sales

Commission (5% of sales)

In spring season,In spring season,there is a study trip to Tokyo.there is a study trip to Tokyo.

In spring season,In spring season,there is a study trip to Tokyo.there is a study trip to Tokyo.

They have a lunch at a high quality They have a lunch at a high quality restaurant.restaurant.

Their products are used in the dishes.Their products are used in the dishes.

Their products are used in the dishes.Their products are used in the dishes.

Their products are used in the dishes.Their products are used in the dishes.

The chef comes, and lectures how The chef comes, and lectures how important Kamikatsu leaves are for important Kamikatsu leaves are for their dishes.their dishes.

The chef comes, and lectures how The chef comes, and lectures how important Kamikatsu leaves are for important Kamikatsu leaves are for their dishes.their dishes.

She plants a new tree. It takes 5 She plants a new tree. It takes 5 years to take good leaves to sell.years to take good leaves to sell.

““My work is my life!”My work is my life!”

Don’t you think that…

It is impossible to start a business in a rural area, because it is hard to find some useful resources there.Local governments of rural areas have to invite some resources from outside of the areas in order to stimulate their local economies.The older you are, the less entrepreneurial you are.

Irodori showed us…

Business Possibility in Rural Area– Employment and Income increase– Tax revenue of local government increase

Effective way of usage of Local Resources– There were plenty of leaves around them.– Leaves are light, and easy to handle.

Lively Elder People– Social welfare expenditure decrease

Tomoji Yokoishi, CEO

“Everybody can play the lead!”

Good for Sellers (Urite-yoshi)

Good for Buyers (Kaite-yoshi)

Good for Society (Seken-yoshi)

“Sanpo-yoshi”

「三方よし」Tradition of Japanese

Merchants

Irodori makes profit by selling leaves.

Decorated dishes by leaves attract people.

Elders become fine, medical cost decreases, and Gov. get more tax.

Part 2Part 2 Current Issues on Japanese Current Issues on Japanese

Economy and SocietyEconomy and Society

- Recovery from Devastation of Earthquake- Recovery from Devastation of Earthquake- Huge Governmental Debt- Huge Governmental Debt- Demographical Change: Aging Society- Demographical Change: Aging Society

TokyoNagoyaOsaka

The Office of Prof. HoriJ.F. Oberlin University, Tokyo, Japan.Friday, 11 March, 2011

Tsunami-affected Area80,000 enterprises

Tsunami-affected AreaFactories, retail stores and fishery and sea food related industries were seriously damaged.

Quake-affected Area750,000 enterprises

Tsunami-affected AreaFactories, retail stores and fishery and sea food related industries were seriously damaged.

Quake-affected AreaPowerful tremor seriously affected the business activities of SMEs and shopping districts.

Top 5 product categories of shipment in affected regions

Product category Value of shipments

% of total

1 Automobile parts and accessories

EUR 6.7 billion

2.5

2 Electronic parts and devices

3.3 8.1

3 Integrated circuits 3.1 7.14 Paper 3.0 14.45 Vehicles (including

motorcycles)2.7 3.8

A company maintained its supply chain by supporting a supplier.

Horio Seisakusho is a company based in Ishinomaki City, Miyagi Prefecture with 52 employees.Horio conducts high precision casting using zinc die casting and holds an approximately 30% global share of the optical pickup component market.

* Optical pickups are devices to record and read data on CDs.

A company maintained its supply chain by supporting a supplier.

Horio is located on high ground, so it was spared tsunami damage. However, the factory responsible for final parts processing and inspection operated by its business partner Ogatsu Musen Co., Ltd. was washed away by the tsunami together with all its equipments.Ogatsu Musen was on the verge of closing its business, but they survived because Horio lent them idle factory space and production machinery free of charge.

絆 “kizuna”link, tie, or relationship among people

It is possible for you to do your business under the condition of that there are other people or other companies, like customers, employees, business partners and banks, etc..

So, you should think the others important.

See the White Paper on Small and Medium Enterprises in Japan 2011.

www.chusho.meti.go.jp/sme_english/

- A company that recovered quickly because they had prepared a BCP

- A company that quickly repaired their production lines

- A financial institution helping SMEs to keep operating

Nuclear Evacuation Area8,000 enterprises

TEPCO Service Area1,450,000 enterprises

Nuclear Evacuation AreaIt is impossible for companies to do business in this area, because of the radiation contamination.

TEPCO Service AreaEspecially in summer, factories and offices took electricity saving measures such as changing working hours and holidays and setting the temperature of air conditioners higher than usual.

Huge Governmental DebtHuge Governmental Debt

The central and local government has The central and local government has EUR 10 trillion debt in 2011, which is more EUR 10 trillion debt in 2011, which is more than twice as much as Japan’s GDP!than twice as much as Japan’s GDP!The government cannot afford to spend The government cannot afford to spend extra money for any purpose.extra money for any purpose.The government has to raise their tax The government has to raise their tax rates in the near future.rates in the near future.The government wants people as many as The government wants people as many as possible to pay taxes.possible to pay taxes.

Governmental Debt / GDP

0

50

100

150

200

250

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

J PN US GB D F I(%)

(3) Population aged 65+ is expectedto be 1/4 to 1/3 of Total Population

in the next few decades.

(2) Labor Force is decreasing now

(1) Children have decreased since 1980s,and are expected to decrease

in the future.

Impacts of Population AgingImpacts of Population Agingon SMEson SMEs

EmploymentEmployment– It would be harder for SMEs to get young It would be harder for SMEs to get young

employees.employees.– SMEs should pay money/effort in order to SMEs should pay money/effort in order to

invite more elders, women, foreigners, and invite more elders, women, foreigners, and disabled.disabled.

What kinds of efforts should SMEs pay?What kinds of efforts should SMEs pay?Are there any SMEs with good practices Are there any SMEs with good practices

in these issues?in these issues?

Good Practice by a small Good Practice by a small businessbusiness

Name:Name: Nihon Rikagaku Industry Nihon Rikagaku Industry Inc.Inc.

Headquarter:Headquarter: Kawasaki, Kanagawa-pref.Kawasaki, Kanagawa-pref.

Capital:Capital: 20 million yens20 million yens

Employees:Employees: 7070

Tokyo

Kawasaki,Kanagawa Pref.

NagoyaOsaka

NRI Kawasaki Factory: 70 employeesNRI Kawasaki Factory: 70 employees

““Dustless Chalk” is their product.Dustless Chalk” is their product.

30% of the domestic chalk market.30% of the domestic chalk market.

Yasuhiro Ohyama, CEOYasuhiro Ohyama, CEO

70% of the workers are….70% of the workers are….

Intellectually disabled persons!Intellectually disabled persons!

People who can’t read letters,People who can’t count number,

… … are working and earning here!are working and earning here!

Why has he employed disables?Why has he employed disables?

Initially, he didn’t want to do it.

A teacher came to Ohyama, and asked him to employ 2 disabled students.Ohyama denied. He thought it was impossible for disables to work here.The teacher visited him three times, and asked him to offer them an opportunity of work experience for two weeks.Finally, Ohyama agreed.

She has worked here for 50 years!She has worked here for 50 years!

During the two-week working,

They worked so hard, and sometimes they skipped lunch time breaks. (Maybe they didn’t know the meaning of the chimes, because they were intellectually handicapped.)

It was so impressive for other employees that they asked Ohyama to hire the girls.He denied initially, but the employees said “We will take care of them. So, please!”He finally agreed against his will.

However, they were not able…

to read instruction manuals.to speak fluently.to calculate.

Their performance was NOT good.

Ohyama wanted to improve the working performance of the handicapped girls.

Color Communication!

One day, Ohyama found a disabled girl commuting from the nearest station to the factory by walk.He saw that she stopped walking when a traffic light was red, and that she started walking when the light turns to blue.Ohyama understood that she could recognize color, even if she was not able to read, to write, to listen, to speak or to calculate.

Good for Sellers (Urite-yoshi)

Good for Buyers (Kaite-yoshi)

Good for Society (Seken-yoshi)

“Sanpo-yoshi”

「三方よし」Tradition of Japanese

Merchants

NRI makes profit by selling chalks.

Teachers like clean chalks.

Disables are employed, and satisfied.Social welfare costs reduce.

Part 3Part 3 The Nature of EntrepreneursThe Nature of Entrepreneurs

Why did successful entrepreneurs want to start Why did successful entrepreneurs want to start their own firms?their own firms?What do you think important when you start What do you think important when you start your business in the 21your business in the 21stst century? century?

Starting Point of SONYStarting Point of SONY

We want to establish a We want to establish a factory, in which factory, in which all engineers all engineers can enjoy their workcan enjoy their work with free with free discussion, and make their discussion, and make their best performance. (Purpose of best performance. (Purpose of Setting-up)Setting-up)

Co-Founder: Akio Morita

Starting Point of SONYStarting Point of SONY

Why don’t we challenge the Why don’t we challenge the issues which large issues which large corporations hesitate to do, corporations hesitate to do, and and contribute to recovery of contribute to recovery of our countryour country by means of our by means of our new technologies and new technologies and products? (Speech at the kick-products? (Speech at the kick-off ceremony)off ceremony)

Co-Founder: Masaru Ibuka

Starting Point of HONDAStarting Point of HONDAHe put a small engine of He put a small engine of former Japanese Army former Japanese Army into a bicycle. into a bicycle. （（ prototype of HONDA prototype of HONDA motorcyclemotorcycle ））It is said that, initially, he It is said that, initially, he made this product made this product because because he wanted to he wanted to help his wifehelp his wife to go to go shopping.shopping.

Founder: Soichiro Honda

The Nature of EntrepreneursThe Nature of Entrepreneurs

Entrepreneurs want to Entrepreneurs want to contribute contribute themselves to society/community/peoplethemselves to society/community/people through their businesses.through their businesses.

When their products/services are accepted When their products/services are accepted by customer/society, they can get profits by customer/society, they can get profits as a result of their contribution.as a result of their contribution.

Phases of Entrepreneurs’ ChallengePhases of Entrepreneurs’ ChallengePhase 1: Economic DevelopmentPhase 1: Economic Development– More goods / servicesMore goods / servicesPhase 2: Economic MaturePhase 2: Economic Mature– Better qualityBetter quality– More luxuriousMore luxurious– More alternativesMore alternativesPhase 3: The 21Phase 3: The 21stst Century Century– More environmental-friendlyMore environmental-friendly– SaferSafer– Barrier-freeBarrier-free– Gender-freeGender-free– More healtyMore healty

Social oriented way of business would be requested.

100 Social Entrepreneurs100 Social Entrepreneursin the Worldin the World

Hiroki Komazaki, 30 years old, the founder and CEO, “Florence”“Florence” is taking care of sick children as substitutions of working mothers.He started an ICT related company when he was a university student.

100 Social Entrepreneurs100 Social Entrepreneursin the Worldin the World

His mother told him that a young mother had been fired because she had been absent from her company in order to take care of her sick child.He was angry. “It is terrible!I should help working mothers, and change this country!”He sold his ICT company and set up the current business, when he was 25.

http://www.florence.or.jp/

Part 4Part 4How can you be a successful How can you be a successful

entrepreneur?entrepreneur?

Do you still think that SMEs with good performance Do you still think that SMEs with good performance and/or successful entrepreneurs are exceptional?and/or successful entrepreneurs are exceptional?

How can you find your business chance? How can you find your business chance?

Do you think of yourself

a “lucky person”?

Question 1:Question 1:

Konosuke Matsushita, Founder of Panasonic Co. asked the question above to the applicant students at his recruiting interviews.

Here is a

“really lucky guy”in Japanese business society.

Mr. Takaaki MitsuiMr. Takaaki Mitsui

Mitsui High-tec Inc.Mitsui High-tec Inc.

Founded:Founded: January, 1949January, 1949Headquarter:Headquarter: Kita-Kyushu, JapanKita-Kyushu, JapanEmployees:Employees: 1,2001,200Sales:Sales: 40 billion yens.40 billion yens.

(EUR 350 mil.)(EUR 350 mil.)Main Product: Main Product: IC Leadframe ( 1/3 of world market)IC Leadframe ( 1/3 of world market)

Kita-Kyushu, Japan

Tokyo

Kita-Kyushu,Fukuoka Pref. NagoyaOsaka

Headquarter & Main Factoryof Mitsui-Hightec

IC leadframe is made of this thin metal plate

a stamping molda stamping mold

Mr. Takaaki Mitsui, the FounderMr. Takaaki Mitsui, the Founder

He started his business in 1949…He started his business in 1949…

with his two friends.with his two friends.

After his 20 year hard work,After his 20 year hard work,

He went to the USAHe went to the USAfor sightseeing in 1968.for sightseeing in 1968.

In front of the research instituteIn front of the research instituteof NASA,of NASA,

At Silicon Valley, California…At Silicon Valley, California…

Mitsui found this metal productMitsui found this metal producton the ground, but didn’t know what it was.on the ground, but didn’t know what it was.

At Silicon valley, California...At Silicon valley, California...Mitsui picked up a piece of metal product.Mitsui picked up a piece of metal product.Mitsui asked what it was.Mitsui asked what it was.– The answer was “it is an The answer was “it is an IC leadframeIC leadframe.”.”– Mitsui replied “Mitsui replied “I seeI see,” ,” although he didn’t know what IC although he didn’t know what IC

was.was.

Mitsui asked how much it was.Mitsui asked how much it was.– 200 dollars (72,000 yen) for 1000 pieces200 dollars (72,000 yen) for 1000 piecesMitsui thought he could produce it atMitsui thought he could produce it at10 yen for 1 piece.10 yen for 1 piece.– Nobody believed it.Nobody believed it.

As soon as he came back to Japan,As soon as he came back to Japan,Mitsui started to produce IC leadframe,Mitsui started to produce IC leadframe,

There were all kinds of difficultiesThere were all kinds of difficultieson the way to success, but…on the way to success, but…

Finally, he did it!Finally, he did it!

The company which was startedThe company which was startedby three people 60 years ago…by three people 60 years ago…

The company which was startedThe company which was startedby three people 60 years ago…by three people 60 years ago…

The company which was startedThe company which was startedby three people 60 years ago…by three people 60 years ago…

has become the leading companyhas become the leading companyin the world IC leadframe market!in the world IC leadframe market!

has become the leading companyhas become the leading companyin the world IC leadframe market!in the world IC leadframe market!

has become the leading companyhas become the leading companyin the world IC leadframe market!in the world IC leadframe market!

I’m a lucky guy!!I’m a lucky guy!!

Question 2: Suppose that…Question 2: Suppose that…

You were Mr. Mitsui,You were Mr. Mitsui,You found a piece of metal product,You found a piece of metal product,You didn’t know it was “IC leadframe,”You didn’t know it was “IC leadframe,”

What would you do?What would you do?

Many crossroads of his lifeMany crossroads of his life

Just a coincidence, but really?Just a coincidence, but really?– There was an IC leadframe on the ground.There was an IC leadframe on the ground.

CuriosityCuriosity– He askedHe asked what it was. what it was.– He askedHe asked how much it was. how much it was.

SpecialtiesSpecialties– Mitsui was good at making stamping molds.Mitsui was good at making stamping molds.– He could estimate how to make it by stamping He could estimate how to make it by stamping

and at how much.and at how much.

How to be a lucky person?How to be a lucky person?

Be careful with everything Be careful with everything around you.around you.Don’t hesitate to ask.Don’t hesitate to ask.Have something you know well.Have something you know well.

Good Luck!Dank u wel!