Montreal Forum: Story of a Woman Entrepreneur in Japan
Merle Aiko Okawara (Chairperson, JC COMSA)
Presentation at Montreal Chamber of Commerce, Montreal, Canada - November 25, 2003
I would like to tell you a story that spans almost four decades of the most exciting times in Japanese economic history. It is the story of a woman entrepreneur that begins in the mid-sixties, only a couple of decades after Japan was flattened and devastated by WWII. The story continues into the dizzying double digit economic growth years of the 70s and the bubble years of the 80s, right into the long recession of the 90s, and brings us up to the deflationary years of the beginning of the new century. Some of it may sound crazy, but it is all true and I can bear witness because it is my story.
Pizza Against All Odds
Let us go back to the sixties. Japan definitely looked different than it does today. Tokyo was mainly a hodge-podge of low, nondescript buildings and Colonel Sanders and the golden arches had not yet set up their neon signs. The only places to grab a bite at lunch time were noodle shops or so called western style restaurants that served Neapolitan spaghetti, which was in effect boiled spaghetti warmed up in a frying pan with ketchup and a few strings of onions and bell peppers. So it was in this sort of setting that we decided to introduce pizza to the market. Not exactly the best timing. But as a small entrepreneur with no resources and no particular technological advantage, I had to enter the market before large companies realized our product's potential.
Actually all the expert marketers I consulted tried to discourage me and said that frozen pizza would never be successful because:
(1) Japanese did not traditionally eat dairy products and would never get accustomed to smelly cheese.
(2) Japanese women spent most of the day in the house and enjoyed the opportunity to get out and do shopping for the evening meal, which her family expected to be prepared from scratch. They would never use prepared or frozen products.
(3) Japanese cuisine did not involve baking, so homes had no ovens to bake a pizza.
(4) With such low salaries, Japanese did not have the luxury of buying unnecessary things such as pizza.
And these facts were all true, but the experts were basing their assumptions on their own experience and knowledge of the present situation. They were not trying to visualize future trends to extrapolate business potential and possibilities further down the road. Well, I did not have a big crystal ball, but having lived in the US and Europe I could very easily see that after the Tokyo Olympics Japan would be opening up more to the world. Of course at that time in the mid-sixties, due to currency and travel regulations not many people were able to go abroad. Perhaps only about 250,000 people traveled annually. But today there are 17 million Japanese traveling abroad every year, exploring every nook and cranny of the globe, anxious to try out the exotic cuisines of the world. They have acquired tastes for food far beyond pizza.
Having been educated in the west I was also able to envision that Japanese women, who were becoming more educated, would certainly not consider shopping for the evening meal their greatest of pleasures. They too would be entering the work force in larger numbers and would be in need of convenient and easy to prepare foods. Who would believe that today many of the young housewives don't even own knives for cutting and chopping food? They can buy their dinner completely prepared and cooked at convenient stores and the basement of department stores.
As the income level of the Japanese rose, more and more appliances would be available. Japanese women in the sixties called the washing machine, refrigerator and television sacred gifts that made their lives easier, and although the toaster oven was not yet available it would soon be added to the ever growing list of electronic appliances. So housewives would eventually be able to bake frozen pizza at home. But until the toaster oven was invented we had to be creative, and the best way we could think of to use the equipment found in Japanese kitchens was to cook pizzas in frying pans. We crinkled up some tinfoil, laid it on the bottom of the pan, put the pizza on top of that and covered it with a lid, forming a crude sort of oven that didn't produce the best tasting pizza. But we enthusiastically sketched this method of cooking pizza on our packaging and for years that was the accepted method in Japan.
Looking for Funding
We discovered early on that in order to succeed, besides having a great product or idea we needed access to capital, good human resources and information. But as basic as these resources are, it seems that entrepreneurs never have enough.
Let us take capital. Having no where to go for money, in the beginning my dad was my main source of capital, my main bank. However, eventually my financial needs outgrew my father's piggy bank and I was forced to go to real banks for money. Besides, suppliers and customers always wanted to know what banks you dealt with, and it would be difficult to say, well, my main bank is daddy.
My dealings with the banks did not go smoothly at first. They wanted collateral so I had to put up my mother's property. Then they wanted me to personally guarantee all the loans and on top of that required my father to co-sign the loans. Even then they thought they were doing me a great favor so I had to bow and kowtow for the money. I guess they didn't' trust a 24-year-old woman. So that means that if my business went under, my whole family's livelihood was at stake because my father was co-guarantor. They could take everything, even our house. It was a scary and risky business, but when you are young you think that you are invincible and it is not because you are but because you don't know any better.
My first factory was a broken down tiny shack that I rented. I bought second hand equipment and hired a bunch of part timers to produce our pizza. But this was the sixties and Japan's economy was growing double digit. The capital markets were still underdeveloped and even large companies depended heavily on indirect financing, which meant that the banks didn't need to make risky loans to small enterprises. They had all the business they could handle. As our business grew, so did our need for more financing.
Since borrowing from banks was not easy we depended very heavily on supplier credit. We were paying for our cheese with 60-day promissory notes. Whenever we felt a big cash flow crunch we asked our suppliers to extend our payments another 30 days, to the point that we were asking the trading company that was selling us cheese to extend us 150 days credit. That's when they put their foot down and demanded some sort of collateral or they would stop shipment. After a week of desperate thinking I decided that instead of fighting them it would be wiser to make them our ally. So I proposed a joint venture. They would sell the imported block cheese to our JV, which would shred, slice and package it for sales to food service companies. It was a win-win situation because they would have a locked in buyer for their bulk cheese, and since it was a JV they would share the profits generated by our sales of the packaged goods. Meanwhile we would have a stable supplier, and since the JV was their subsidiary as well as ours they would not require collateral. They agreed, and when I look back upon it now it was quite preposterous, a dinky little company proposing a partnership with Mitsubishi corporation, a company so huge that their keiretsu group sales contributes to over 5% of Japan's GDP. But that JV, which is considered a subsidiary by both Mitsubishi shoji and J.C. Foods, has now been in existence for 18 years.
The second resource after financing that is necessary for a successful business is human resources. The labor market was extremely tight in the 60s and 70s because large companies were expanding so rapidly. We were always short-staffed in our factory, and as our business grew production lagged behind so much that we were delivering frozen pizzas that were still warm to supermarkets. Everyone was advising us to put out more flyers advertising for employees or to increase our wages. However, I knew that we couldn't compete with the large companies no matter what we did. So I put on my thinking cap and jumped out of the box again. I decided that if we couldn't get people to come to us we would go to where there were more available people, and the spot I picked was a small village in the countryside of the southern island of Kyushu. I found a small warehouse in the middle of rice paddies and decided that this would be our pizza plant, and indeed, all the farmers' wives and daughters were only too happy to earn some pocket money by making some strange type of western food. Moving a plant to Kyushu doesn't seem like much today when companies are moving them to Thailand and China, but in those days for a small company whose employees had never even been on an airplane before, the one and a half hour flight to Fukuoka was a big adventure.
Moving along to the 1970s, Japanese were growing wealthier and their pent up demand for consumer goods and services was increasing by leaps and bounds. It was a period where you could sell almost anything, so we increased the number of our sales branches and factories. As we moved forward into the 1980s our business was getting easier to finance. Banks were now asking us to borrow money instead of turning us away, and the reason was that larger companies were now becoming more sophisticated and were obtaining more equity or direct financing from the financial markets in Zurich and London as well as Tokyo. So banks were awash in money and were throwing it at smaller companies like us, helping us to make our own little bubbles. And we all know where that led the country.
Successful Entrepreneurship is Possible
Many of the situations that I am telling you about are generational and much has changed today. But the playing field still remains very much tilted against entrepreneurs and women. In the west the best and brightest can be enticed into startups or to leave large companies to start their own businesses. It is part of the American dream to be your own boss. Indeed, legal, societal and economic factors are favorable to the entrepreneur. Besides being admired and encouraged by society there are favorable bankruptcy laws and a fluid labor market and acceptance of failure.
In Japan there are cultural barriers. Traditionally the best and brightest choose to go into government or large corporations. If an employee worked for a small company it was a badge of failure, meaning that he was either not capable or not diligent enough to get into a good university, which was a passport to a good job. Entrepreneurs also had difficulty finding sufficient funds. Most of them started their companies with loans from friends and family, and if they had inherited any land they could use it as collateral and borrow from banks. But they would risk losing land that may have been in their family for generations. Bankruptcy laws were so tough that only the foolhardy or the very brave would put everything on the line by guaranteeing their loans.
Today however, the situation has improved and several successful entrepreneurs like Masayoshi Son of Softbank serve as role models. Their success has led to a growing number of the best and brightest that are aspiring to become entrepreneurs.
Startups now have a few more options for getting seed money. There are angel investors and venture capitalists that did not exist when I was just starting out, which are willing to fund promising businesses. Bankruptcy laws, though still quite stiff, are slowly being revised.
Changes in the past ten years have made the Japanese environment more conducive to entrepreneurial activity. Large corporations no longer abide by the old social contract of lifelong employment and other business practices that made their companies attractive, therefore helping to increase labor mobility dramatically. One of the reasons that angel investors and venture capitalists were not so aggressive before in Japan was that it was difficult to exit an investment. Now with newer markets like Mothers and Hercules, the big pay off, the IPO, has become a possibility and start-ups have been able to go public within a few years. When I took my company public over ten years ago the average number of years between start up and IPO on the JASDAQ was 29 years.
The government is beginning to realize that the dynamism of the Japanese economy depends on entrepreneurial activity because the actual number of companies is on a steady decline. Between 1997 and 1999, 180,000 new companies were started per year, whereas 280,000 closed their doors. In other words the number of companies is shrinking by 100,000 per year. The government reacted by having government-backed financial institutions make unsecured loans to help individuals start businesses. There is even low interest financing offered to particular groups like women and elderly people who want to start businesses. And since a few years ago stock options have been allowed as a means of attracting good people.
Women Still Struggling in Business
The playing field is tilted against women in business all over the world, but the situation is particularly serious in Japan. Although about 50% of women over 15 years old are in the work force, most leave their jobs to have children and re-enter as part-timers once their last child is in school. It goes to show how difficult it is for women in Japan to juggle work and family duties. There are various reasons, including the societal pressures brought about by the ingrained Confucian philosophy that glorifies the "good wife, wise mother" ideal and the pressures of Japanese companies that require employees to spend an extraordinary amount of time on company business. Unless the infrastructure is improved, for example by additional child care facilities that are open for longer hours or more flexible working conditions, women will continue to leave companies during their most productive years. If a woman decides to play superwoman and raise a family while working, in most cases she has to be prepared to carry the burden. The average man spends 25 minutes a day on helping around the house compared to 4.5 hours for working women.
When women do re-enter the workforce after time out to raise children, the old seniority system works against allowing them to get back their old jobs. They are forced to work as part-timers at about 70% of regular pay. For women who aspire to managerial positions, the figures are quite dismal. Less than 10% of management jobs are held by women. One of the reasons for this is that it is assumed women will leave their jobs once they have children, so they are not given the same training as men. Therefore, capable women are disgusted by the thick bamboo ceiling that hangs above them in corporate Japan for it is much tougher, much thicker and less transparent than the glass ceiling. So they are beginning to leave to form their own businesses. There are 65,000 women who head their own businesses in Japan, many of them small enterprises that are extensions of their hobbies such as restaurants, flower shops or bakeries. Others are involved in selling their services to other working women like running a baby sitter companies, nursery schools and house cleaning services.
Hope for a Bright Future
Despite the fact that in the past being an entrepreneur or a foreigner or a woman was a great handicap in doing business in Japan, I believe that the 21st century holds great opportunities. Entrepreneurs are leveraging their speed against slower-moving large corporations and are moving into new areas such as biotechnology and nano-technology. Foreign private equity firms like Ripplewood and Cerebus are gobbling up troubled businesses and turning them around. And foreign professional managers are being scouted to head Nissan and Mitsubishi motors, among others, to provide the leadership necessary for restructuring and turn-around. Meanwhile, corporate women are rising to the top of some major firms such as Merrill Lynch Japan and Recruit, a major publishing firm. Although women entrepreneurs are heading tiny companies for the most part, when you consider the state of the economy it is encouraging to know that 65,000 women are creating job opportunities and are beginning to become a vibrant force.
The future belongs to the young, the innovative, the out-of-the-box thinkers that can identify new market trends and pick out the gems from among the rubble left over from the bursting bubble. The future belongs to those who are not part of the establishment, and who will succeed because they dare to be different.