The Success-Secrets of Long-Lived Companies in the Spotlight
In Japan, there are more companies with a 100-year-long history than anywhere else in the world. Research on the successful management of these long-lived companies is progressing.
More than 80,000 long-lived companies in the world have been in business for more than 100 years since their establishment (although the number varies depending on the research institution), and the largest number is in Japan –more than 33,000 in 2019 according to Teikoku Databank. About 5,000 companies are in Germany, and both countries are major sources of long-lived companies. More than 3,000 companies in Japan and 1,500 in Germany even exist longer than 200 years. There is a lot to learn from the management methods of long-lived companies, that endured many challenges such as an unstable world economy and global changes. We asked professor Hidekazu Sone of Shizuoka University of Art and Culture what makes long-lived companies outstanding in the first place.
You have spent many years researching long-lived companies in Japan and other countries. What makes this topic relevant today?
Hidekazu Sone: We have identified the corporate governance and management of long-lived companies and family businesses in Japan, Germany, and Italy that have achieved long-term viability. The research method we have used combines management studies with business history. In recent years, there has been a growing interest in Japanese long-lived companies overseas, and the word shinise is becoming known around the world through the international papers we have written and studies we have done. Among them, we have been focusing on surveys and research that includes Kongo Gumi Co., Ltd. from Osaka, the world's oldest existing company that specializes in the construction of traditional Japanese temples and shrines, founded 578 years ago. With our studies, we have revealed the secrets of the long-term survival of these companies (among others in Sone 2019, "Survival Mechanisms of Shinise (Long-lived) Companies"). Long-lived companies are good case studies for finding long-term competitive advantages.
Such advantages can be roughly classified as follows. First, it is possible to observe company behavior over a long-term span. Second, we can learn from their experiences of overcoming many crises and the wisdom they accumulated. Third, they can be discussed not only from the perspective of growth and expansion, which has been discussed in business administration, but also from the perspective of survival. Finally, given that long-lived companies are rooted in local communities and have a high ratio of family businesses, it is possible to discuss them from the perspective of their relationships with the local community and culture, in addition to the study of management. These are what make long-lived companies uniquely attractive.
Let's look at it from another angle. Germany is known for its long-lived companies. For example, German companies that have survived for more than 200 years are in the top ranks, similar to Japanese companies, and many of these long-lived companies are also small- and medium-sized businesses (SMEs) and family businesses. In recent years there has been a research focus on long-lived companies and family businesses, and the establishment of courses and institutes focusing on family businesses at universities in Japan and Germany is a phenomenon that was unthinkable a decade or so ago.
How many long-lived companies are there in the world?
Sone: The number of long-lived companies varies according to research institutions and researchers, and the exact number is still unknown. However, as a rough estimate based on various data, 33,000 companies in Japan, 20,000 in the US, 14,000 in Sweden, 5,000 in Germany, and 1,800 in the UK have survived for more than 100 years. In many cases, companies only kept the trade name, the founding family no longer exists, the owner has changed many times in a short period of time, or the company has been repeatedly resold, leaving no history or philosophy behind. In addition, there are some companies that have been out of business for hundreds of years but continue to exist because they suddenly claim their trade names. Furthermore, self-proclaimed long-lived companies that do not even exist, such as shell companies, are counted.
In order to obtain sufficient and accurate figures, we have spent more than five years conducting field surveys of long-lived companies that have survived for more than 400 years. The results were released in a paper last year and received a great response. The results revealed that Japan has 251 companies that have been in business for over 400 years, followed by Germany with 68, Austria with 21, Italy in fourth place with 17, and France in fifth place with 10. In the future we would like to put out more precise figures, for example numbers on companies that have been 300 years or more, or 200 years or more in business.
Japan is said to have many long-lived companies, but are there any common characteristics such as scale, industry, etc.?
Sone: More than 80 percent of Japanese long-lived companies are SMEs with 1 billion yen or less. For a business to survive, it is important that it is managed according to its size, the so-called "size-oriented management," and not necessarily to expand it. There is an ancient saying, "Businesses and folding screens will fall down if they are spread out too much." It is the wisdom of our predecessors that a small or medium-sized business can survive by managing them in a way that suits their own size rather than by reckless business expansion.
Long-lived companies with a history of more than 100 years are classified by industry as "manufacturing" (8,344 companies, 25.1%) including traditional industries such as the sake industry, "retail" (7,782 companies, 23.4%), and "wholesale" (7,359 companies, 22.1%) (Teikoku Databank). In the case of long-lived companies that have been in business for 200 years or more, the lodging/restaurant industry is the most common, followed by manufacturing and retail.
Which progresses has the research on long-lived company management in Japan made? What are your research methods?
Sone: It has been making rapid progress for the last 15 years. This is not only true for Japan, but also worldwide. The research methods are mainly based on studies of business administration and business history. But since it is an interdisciplinary field, we expect that basic research will be advanced in sociology, cultural anthropology, history, etc. in the future, and that research on long-lived companies will deepen as an applied science. I myself have been conducting research from the perspective of bridging the gap between management studies, especially management strategy theory, and business history. We have discovered new facts not only through interviews with the family heads but also through the excavation and reprinting of primary historical materials such as old documents. In addition to the idea that long-lived companies survive based on internal resources such as their core competencies, we believe that relationships with stakeholders surrounding a company, that is, business systems, play an important role for long-term survival.
In Japan after the Great East Japan Earthquake in 2011, in order to dispel an atmosphere of social/economic stagnation, there have been private-sector-led initiatives to model their practices after the management of long-lived companies that have overcome hardships such as natural disasters, wars, and economic crises. Professor Sone also serves as an advisor to the "Association for 100 Years Corporate Management," organized by Nikkan Kogyo Shimbun, Ltd.
Are you familiar with long-lived companies in Germany and other Western countries?
Sone: Originally, I was interested in technical companies, which had little prior research conducted within the study of long-lived companies. For that reason, I found value in the concept of monozukuri and have focused on it. Companies in Germany and Italy are fascinating. I've been interested in Germany, which, like Japan, is a powerhouse for long-lived companies, and have been receiving science and technology research grants to conduct international comparative studies on Germany and Japan. The results have been published in books and papers. More recently, SMEs and small family businesses, also known as "Mittelstand", have been highlighted as the German economy’s strength-basis. Hermann Simon (Hidden Champions, 2013), who focused on the global market leadership of German medium-sized companies, named them "hidden champions," and noted that this leadership is an underlying factor behind Germany's continued outstanding export performance. Business history perspectives reveal that Germany's leading family-run conglomerates give their affiliated companies a high degree of autonomy. All these studies show the importance of SMEs in Germany.
We also have conducted surveys on historic companies in Europe for many years. For example, in "Corporate Governance and Management of German Companies", published in 2021 (co-authored with Professor Norihisa Yoshimura of Osaka Metropolitan University and others), we focused on small and medium-sized companies in Germany. Specific examples include Ludwig Perlinger GmbH, the only company in Germany in the tanning industry, and Robert Herder GmbH & Co. KG and Franz Güde GmbH, which have been leaders in the cutlery industry. Although by no means large in scale, they operate with a spirit just as strong as that of large corporations in the global market, based on the distinctive techniques they have accumulated over the years.
What are the characteristics and similarities of long-lived companies in different countries?
Sone: As in Japan, many of Germany's long-lived companies are locally rooted, and many are small and medium-sized family businesses. When I actually see them maintaining the company's distinctive techniques and structures, including human resource development, taking pride in the craftsmanship and skills passed down from generation to generation, and working honestly, diligently, and in a disciplined manner, I feel the similarities with Japan and a sense of security. Furthermore, a common feature of long-lived companies in Japan and Germany is that management is conducted with a focus on survival. For example, the mechanisms and methods for making a family business last can be seen from interviews with the family heads. Although it varies from region to region, in South Bavaria and other regions where many long-lived companies remain, survival is achieved by limiting the number of heirs to one, preventing asset dispersion, and remaining free of debt, such that founding family members remain amicable over generations and avoid the pitfalls associated with continued survival as much as possible. This is also the case in Japan. The major differences from Japan are that in Japan, the system of adopting sons-in-law was often used rather than adhering to the pure-blood principle, and detailed family precepts were handed down to descendants. We also focus on the effects of these differences.
How do you link them to management studies?
Sone: Until the early 2000s, management studies mainly focused on the growth and expansion of companies. The companies studied were also mainly large corporations and start-ups. However, due to the collapse of the bubble economy, the 2008 financial crisis, even large corporations have gone out of business. The focus of attention has been on long-lived companies that have survived multiple crises, and the issue of "survival" is now being discussed more and more. In Japanese academia as well, the Japan Academy of Family Business was established about 15 years ago. Since then, more and more academic societies studying long-lived companies have been established, with research continuing to develop.
When I visit long-lived companies in Europe, many people are delighted to tell me that until now, even local researchers had not come to conduct research, and yet I came all the way from a country as far away as Japan. It makes me happy to be welcomed by them, and at the same time I feel a sense of responsibility and fulfillment. We are grateful that we are able to learn so much from German and other European companies and apply what we have learned to Japanese companies.
1 According to data released in April 2020 by Nikkei BP Consulting, the countries with the largest number of companies that have survived for more than 200 years are Japan, the United States, and Germany, in that order. Similar surveys have been conducted in various locations, but due to differences in standards, more accuracy is required (Nikkei BP Consultingwebsite: https://www.atpress.ne.jp/news/209498).