Date
21 July 2017
The fourth generation of the family that owned Japan's Isetan department store chain sought help from external talent to turn around the business. Photo: Internet
The fourth generation of the family that owned Japan's Isetan department store chain sought help from external talent to turn around the business. Photo: Internet

How smooth succession keeps Japanese family firms going strong

There is an old Chinese saying that “wealth cannot pass beyond the third generation”.

It is said that only 3 percent of family businesses pass to the fourth generation.

Hōshi Ryokan is a hotel and spa in Komatsu, Japan.

Established in the year 718, the hotel has been owned and run by the same family for 26 generations and 1,297 years.

As a big fan of Japanese culture, I’m quite impressed by this, the world’s oldest hotel.

A book by Zhou Xibing, an expert in Chinese company management, provides some insights.

Chinese value tradition, and they will pass the family business only to biological offspring.

In Japan, a family business also has what appears to be a rigid succession system: it is inherited only by the eldest son in the family.

That has averted potential fights and conflicts between family members over the distribution of family wealth.

However, the Japanese are more open and are prepared to select the most talented among the siblings in the next generation to be treated as the eldest son and heir — sometimes going as far as to adopt a talented person into the family and train him as the successor.

This open-minded approach is critical to the long-lasting success of Japanese family business.

In Japan, 25 to 34 percent of family businesses have been inherited by an adopted child or son-in-law.

For example, big Japanese companies like Panasonic and Honda have taken this approach to finding the right heir.

Another alternative is to appoint a so-called shopkeeper, as in the professional management system of modern companies in the West.

Several Japanese family businesses with long histories have hired professional managers to look after their daily operations.

While the first generation started the business, that does not necessarily mean the descendants will keep the business forever.

Isetan, a Japanese department store started in 1886, struggled when it was owned by the founding family’s fourth generation.

The family sought help from external talent to turn around the business.

Japanese family businesses have the longest history in the world.

There are seven companies with a history of over 1,000 years, and 32 that have lasted over 500 years.

And there are as many as 3,146 companies that are more than 200 years old, and more than 50,000 that have existed more than a century.

By contrast, there are very few Chinese companies that have lasted more than 200 years.

The obsession with perfection in their products is one of the key reasons Japanese companies survive across the generations.

In addition, more than 80 percent of Japanese family businesses have integrated family values and inspirations into the management philosophy of the business.

Allan Lee Ka-fai is the writer of this article, which appeared in the Hong Kong Economic Journal on June 12.

Translation by Julie Zhu

[Chinese version 中文版]

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Young Accountants Association of Hong Kong

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