History of Innovative Entrepreneurs in Japan: Takeo Kikkawa

Takeo
Kikkawa
History
of Innovative
Entrepreneurs
in Japan
History of Innovative Entrepreneurs in Japan
Takeo Kikkawa
History of Innovative
Entrepreneurs in Japan
Takeo Kikkawa
Graduate School of International Management
International University of Japan
Niigata, Japan
Translated by
M. S. Murphy
Long Island City, NY, USA
Kazuya Hirai
Tsuru-shi, Yamanashi, Japan
ISBN 978-981-19-9453-1 ISBN 978-981-19-9454-8 (eBook)

https://doi.org/10.1007/978-981-19-9454-8
Translation from the Japanese language edition: “Inobēshon no Rekishi - Nihon no Kakushinteki Kigyōka
Gunzo” by Takeo Kikkawa, © Takeo Kikkawa 2019. Published by Yuhikaku Publishing. All Rights
Reserved.
© Kreab K.K. 2023. This book is an open access publication.

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Acknowledgments
The original Japanese edition was published by Yuhikaku Publishing Co., Ltd. in
2019. I am grateful to M.S. Murphy who translated the main Japanese text into
English with her keen journalistic eyes, as well as to Kazuya Hirai for his thorough
translation of the footnotes and other citation materials. I am deeply thankful to
Professor Sam Lehman-Wilzig who copyedited and polished the translated manu-
script, as well as Dr. Maki Umemura and Dr. Kenji Kushida who tirelessly advised
on this English edition. I am grateful to all those who have contributed their skills
and time to this project, making this English edition a reality.
v
Contents
Introduction: What Is Innovation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Aim of This Book: Three Questions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
What Is Innovation: Three Views . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Book’s Structure: Three Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . 3
Part I The Era of Breakthrough Innovations

Overview I: Edo Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Case 1 Zen’emon Konoike: Successive Innovations Impacting the
Nationwide Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The Konoike Family Tree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Development of Clear Sake and Its Shipment to Edo . . . . . . . . . . . . . . . . . 12
The Beginning of [Konoike’s] Water Transport Business . . . . . . . . . . . . . . 13
Expansion into Financing and Lending to Daimyo . . . . . . . . . . . . . . . . . . . 13
“Financial Statement” and Double-Entry Bookkeeping . . . . . . . . . . . . . . . . 15
The Konoike Family After the Meiji Restoration . . . . . . . . . . . . . . . . . . . . 16
Case 2 Takatoshi Mitsui: New Business Opportunities and the Retail
Revolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Brief Biography of Takatoshi Mitsui . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Groundbreaking Nature of “Tanasaki Uri” (Store-Front Sales) . . . . . . . . . . . 20
The Ground-Breaking Nature of Takatoshi Mitsui’s Retail Innovation . . . . . 22
Introduction of the Joint Ownership System . . . . . . . . . . . . . . . . . . . . . . . . 23
Case 3 Genzaemon Nakai: A Regional Merchant Thriving on the
National Stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Rise of Omi Merchants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
The Nakai Family Tree . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Epoch-Making Nature of the Nakai Management Style . . . . . . . . . . . . . . . . 29
The Limits of the Nakai Family and Their Background . . . . . . . . . . . . . . . . 30
vii
viii Contents
Discussion Point 1: Early Modern or Pre-Modern? . . . . . . . . . . . . . . . . 33

The “Novelties” of the Edo Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Matao Miyamoto’s “Edo Period = Early Modern” Theory . . . . . . . . . . . . . 33
Prerequisites for Japanese Economy’s Early Takeoff . . . . . . . . . . . . . . . . . . 34
Overview 2: From Port Opening to Post Russo-Japanese War
Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Japan’s Encounter with Global Capitalism . . . . . . . . . . . . . . . . . . . . . . . . . 37
Accumulation of Capital and Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Industrial Revolution in Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Three Types of Businessmen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Case 4 Hikojiro Nakamigawa: Zaibatsu Reform by Salaried
Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Characteristics of Japanese Zaibatsu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Brief Biography of Hikojiro Nakamigawa . . . . . . . . . . . . . . . . . . . . . . . . . 46
Recovery of Non-performing Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Appointment of Salaried Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Industrialization Effort and Its End . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Case 5 Yataro Iwasaki and Yanosuke Iwasaki: Formation
of Zaibatsu by Owner Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Brief Biography of Yataro Iwasaki . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Brief Biography of Yanosuke Iwasaki . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Breaking Away from Political Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Appointment of Salaried Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Promotion of Industrialization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Case 6 Zenjiro Yasuda and Soichiro Asano: Zaibatsu Formation
Through the Collaboration of Two Owner-Managers . . . . . . . . . . . . . . . 63
General Zaibatsu and Financial/Industrial Zaibatsu . . . . . . . . . . . . . . . . . . . 63
“Yasuda Zenjiro” by Tsunehiko Yui . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Brief Biography of Zenjiro Yasuda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Brief Biography of Soichiro Asano . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Cooperation Among Owner-Managers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Case 7 Eiichi Shibusawa: Mobilization of Managerial Resources
by an Investor-Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
A Tumultuous Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
As an Investor-Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Complementary Effects Among the Three Types of Managers . . . . . . . . . . . 76
As a Social Entrepreneur . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
As a Business Leader . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
As a Private-Sector Diplomat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Gapponshugi and Its Significance Today . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Contents ix
Discussion Point 2: How Did Japan’s Economy Manage to Take

Off So Early? Conditions That Enabled the First Successful
Industrialization Case Among Latecomer Nations . . . . . . . . . . . . . . . . . 85
General Requirements for Latecomer Nations’ Industrialization . . . . . . . . . . 85
Unique Conditions That Made Japan the First Case of Successful
Industrialization Among Latecomer Nations . . . . . . . . . . . . . . . . . . . . . . . . 87
Interplay Among the Three Types of Managers . . . . . . . . . . . . . . . . . . . . . 87
Early Take-Off as the Outcome of Breakthrough Innovations . . . . . . . . . . . 88
Part II The Era of Incremental Innovation

Overview 3: World War I to the 1980s . . . . . . . . . . . . . . . . . . . . . . . . . . 93
World War I and Economic Turmoil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
The Japanese Economy Gets on a Long-Term Growth Track . . . . . . . . . . . . 94
The Years Leading to World War II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
From High Growth to Stable Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Incremental Technological Innovation and “Japanese Style
Management” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Case 8 Ichizo Kobayashi: A Leader in Urbanization Creates
a New Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Urbanization and Electrification Pave the Way for a Mass Consumer
Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Housing Shortages in Osaka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Minoh-Arima Electric Railway Enters the Real Estate Business . . . . . . . . . . 102
Ichizo Kobayashi’s Entrepreneurial Innovation . . . . . . . . . . . . . . . . . . . . . . 105
Kobayashi Also Contributes to Electrification . . . . . . . . . . . . . . . . . . . . . . . 106
Case 9 Yasuzaemon Matsunaga: Electrification Leader Establishes
Private Sector-Led Public Utility Operations . . . . . . . . . . . . . . . . . . . . . 109
Encounter with the Electric Power Business . . . . . . . . . . . . . . . . . . . . . . . . 109
Practicing “Scientific Management” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Matsunaga’s Foresight in “Personal Opinion on Electric Power
Regulation” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
The Japanese Government Imposes Controls over the Electric Power
Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Matsunaga Leads the Reorganization of the Electric Power Industry . . . . . . 115
Two Contributing Factors to Matsunaga’s Ascent . . . . . . . . . . . . . . . . . . . . 116
Establishment of the “Private Sector-Led Utility” Model . . . . . . . . . . . . . . . 117
Case 10 Saburosuke Suzuki II: Commercialization of Exceptional
Breakthrough Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
“Three Greatest Inventions in Japan” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Invention of Ajinomoto by Kikunae Ikeda . . . . . . . . . . . . . . . . . . . . . . . . . 120
The Commercialization Effort by Saburosuke Suzuki II and Others . . . . . . . 121
Saburosuke Suzuki II Before His Encounter with Ajinomoto . . . . . . . . . . . . 121
x Contents
Conditions That Enabled Ajinomoto’s Commercialization . . . . . . . . . . . . . . 123

Struggles Leading Up to Ajinomoto’s Commercialization . . . . . . . . . . . . . . 124
What Made Ajinomoto’s Commercialization Possible? . . . . . . . . . . . . . . . . 125
Case 11 Kiichiro Toyoda: From Breakthrough to Incremental
Innovations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
“The Business History of the Toyoda Family’s Spinning and Weaving
Business” (Toyoda-ke Boshoku Jigyo no Keiei-shi) by Hiroaki Yamazaki . . 127
Sakichi, Risaburo, and Kiichiro Toyoda . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Development of the Model G Automatic Loom . . . . . . . . . . . . . . . . . . . . . 130
Entry into Automobile Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
Toyota’s Labor Dispute and Kiichiro’s Retirement . . . . . . . . . . . . . . . . . . . 132
The Toyota Production System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
Case 12 Shitagau Noguchi and Yoshisuke Aikawa: Emergence
of New Konzerns and Foray into the Continent . . . . . . . . . . . . . . . . . . . 137
New Konzerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Brief Biography of Shitagau Noguchi . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Brief Biography of Yoshisuke Aikawa . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
“Yoshisuke Aikawa, Founder of Nissan” by Masaru Udagawa . . . . . . . . . . 146
Expansion into the Asian Continent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Case 13 Sazo Idemitsu: From “Oil Merchant of the Continent”
to “Hero of Native Oil Companies” . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
The Miracle of the Nissho-Maru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
Idemitsu’s Overseas Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Expansion into Manchuria and Delivery of Axle Oil to the South
Manchuria Railway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151
Pursuing an “Emphasis on Overseas Territories” . . . . . . . . . . . . . . . . . . . . 153
Deployment to the South and Japan’s Defeat in World War II . . . . . . . . . . . 156
Transformation into “Hero of Native Oil Companies” . . . . . . . . . . . . . . . . . 158
Case 14 Yataro Nishiyama: Leader of Capital Investment Drives
High Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
A Decade of Revitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Yet Another Miracle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Key Points of Nishiyama’s Innovativeness . . . . . . . . . . . . . . . . . . . . . . . . . 162
The Man who Changed the History of Japan’s Steel Industry . . . . . . . . . . . 164
Decision-Making with a Rational Thinking . . . . . . . . . . . . . . . . . . . . . . . . 166
Into the Era of High Economic Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . 167
Case 15 Konosuke Matsushita: Initiator of the “Consumer
Revolution” Drives High Economic Growth . . . . . . . . . . . . . . . . . . . . . . 169
The Progression of the “Consumer Revolution” . . . . . . . . . . . . . . . . . . . . . 169
Creation of Dedicated Distribution Networks by Home Appliance
Manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Contents xi
“Matsushita’s Way of Doing Business” as Practiced by the “God of

Management” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Konosuke Matsushita Before WWII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
Konosuke Matsushita After WWII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
Case 16 Masaru Ibuka, Akio Morita, Soichiro Honda, and Takeo
Fujisawa: The Groundbreaking Nature of Sony and Honda
Becoming Global Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
“Sony of the World”; “Honda of the World” . . . . . . . . . . . . . . . . . . . . . . . 181
Profiles of the Four Businessmen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Commonality of Their 1946 Founding and Early Product and Sales
Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183
Overseas Business Trips in 1952 and Investment for Competitiveness . . . . . 186
Full-Scale Entry into Overseas Markets from 1957–1958 . . . . . . . . . . . . . . 190
Entry Into Large Established Markets in 1963–64 . . . . . . . . . . . . . . . . . . . . 192
Objective Conditions That Enable Innovative Entrepreneurial Activities . . . . 194
Subjective Factors That Enable Innovative Entrepreneurial Activities . . . . . . 196
Case 17 Toshio Doko: The Sense of Crisis Harbored by the “Fine
Physician of the Business World” and “Mr. Administrative Reform” . . . 201
Building the Foundation for “Doko the Turbine Man” . . . . . . . . . . . . . . . . 201
Delivery of the First Domestically Produced Turbine . . . . . . . . . . . . . . . . . 202
Revamping the Management of Ishikawajima Shibaura Turbine . . . . . . . . . 203
Rebuilding the Management of Ishikawajima Heavy Industries . . . . . . . . . . 204
Rebuilding Toshiba’s Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207
From Keidanren Chairman to “Mr. Administrative Reform” . . . . . . . . . . . . 209
A Sense of Crisis Harbored by Doko . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
Discussion Point 3: How Did Japan’s Economy Continuously Grow
Over a Long Period? Catch-Up and Domestic Demand . . . . . . . . . . . . . 213
Examining Akira Suehiro’s “Catch-Up Industrialization Theory” . . . . . . . . . 213
Examining the World Bank’s “East Asian Miracle” . . . . . . . . . . . . . . . . . . 215
Long-Term Growth as a Result of Incremental Innovations . . . . . . . . . . . . . 216
Part III The Era of Struggle: Japan Caught Between Two Types
of Innovation
Overview 4: Japan Since the 1990s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221
The Japanese Economy Takes a Darker Turn . . . . . . . . . . . . . . . . . . . . . . . 221
Japanese-Style Management Turns Dysfunctional . . . . . . . . . . . . . . . . . . . . 222
Investment Restraint Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Case 18 Kazuo Inamori: Managerial Renewal by a Venture
Manager . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
Inamori Begins Kyoto Ceramic (Kyocera) as a Venture Manager . . . . . . . . . 225
Future-Oriented Market Cultivation and Technological Development . . . . . . 227
Hourly Profit System and “Amoeba Management” . . . . . . . . . . . . . . . . . . . 229
An Entrepreneur Who Upholds His Philosophy on Management . . . . . . . . . 229
xii Contents
Founding of Daini-Denden Inc. (DDI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231

Restructuring Japan Airlines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
Case 19 Toshifumi Suzuki: Convenience Store Innovations from
Japan to the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235
The Dynamism of Japan’s Retail Industry Development . . . . . . . . . . . . . . . 235
Brief Biography of Toshifumi Suzuki . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
Suzuki’s Convenience Store Deployment Strategy . . . . . . . . . . . . . . . . . . . 239
Introduction of the Franchise System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
Product-by-Product Merchandise Management and “Hypothesis-Testing
Ordering” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241
Case 20 Tadashi Yanai and Masayoshi Son: Exceptional Challenges
Undertaken by the Two Risk Takers . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Tadashi Yanai Before 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
Uniqlo Kicks Off the “Made in China” Era . . . . . . . . . . . . . . . . . . . . . . . . 246
Tadashi Yanai Since 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
Masayoshi Son Before 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250
Masayoshi Son After 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 254
Discussion Point 4: Why Did Japan’s Economy Slow Down?
ICT Revolution and “Disruptive Innovation” . . . . . . . . . . . . . . . . . . . . . 257
Establishment of “First Mover Advantage” Through the ICT Revolution . . . 257
“Disruptive Innovation” in the Innovator’s Dilemma by Clayton M.
Christensen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
“The Innovator’s Solution” and Answer to the Remaining Question . . . . . . 259
Conclusion: Reviving Innovation—Requirements for the “Two-Front
Operation” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
Summary of This Book . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
Ways to Revive Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
Notes About the Translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
Statistical Materials, Newspaper Articles, and Magazines . . . . . . . . . . . . . . 279
Name Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
Subject Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285
About the Author
Takeo Kikkawa PhD in Economics, The University of Tokyo, is Vice President

and Professor at the Graduate School of International Management, International
University of Japan. He was Associate Professor at the Department of Business
Administration, Aoyama Gakuin University; Professor at the Institute of Social
Science, The University of Tokyo; Professor at the Graduate School of Commerce
and Management, Hitotsubashi University; Professor at the Graduate School of
Innovation Studies, Tokyo University of Science; Visiting Scholar at Harvard
Business School; and Guest Professor at St. Gallen University, Yonsei University,
and the Berlin Free University. He is Professor Emeritus of The University of Tokyo
and Professor Emeritus of Hitotsubashi University.
His expertise is Japanese business history, and his main research field is the
energy industry. He served as President of the Business History Society of Japan
from 2013 to 2016 and is also a member of the Japanese Government’s Advisory
Committee for Natural Resources and Energy, METI (Ministry of Economy, Trade,
and Industry).
He has published many monographs and articles, including Policies for Compet-
itiveness: Business-Government Relationships in the “Golden Age of Capitalism,”
co-edited with Hideaki Miyajima and Takashi Hikino (Oxford University Press,
1999), and Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global
Perspective, co-edited with Patrick Fridenson (University of Toronto Press, 2017).
He has received several academic awards, including the Energy Forum Award for
his book, Nippon Denryoku Gyo Hatten no Dainamizumu [Development Dynamism
in Japan’s Electric Power Industry] (Nagoya University Press, 2004).
xiii
Introduction: What Is Innovation?
Schumpeter, Kirzner, and Christensen
Abstract This section serves as an introduction to this book, which discusses

Japan’s economic development by focusing on changes in the nature of innovation
and framing them with the theories of Joseph A. Schumpeter, Israel M. Kirzner and
Clayton M. Christensen.
The Aim of This Book: Three Questions
This book aims to clarify the course of Japan’s economic development by focusing
on changes in the nature of innovation. To do so, I focus on activities of trailblazing
entrepreneurs who became the standard bearers of innovation in Japan.
It is important for a business historian to show major economic development
trends in the past along with contemporary entrepreneurs’ activities. As a member of
the academic community involved in the study of business history, I decided to
tackle this fascinating task, while drawing insights from the work of my
predecessors.
When looking back at the business history of Japan, there are three questions that
need to be answered.
First, why was it possible for Japan to get on a growth path so early? True, the
Japanese economy took off later than that of the Western industrialized nations but
Japan’s economic ascent was the earliest among late developers. What made this
early takeoff possible? To answer this question, we need to turn back the clock to the
Edo period when the prerequisites for an early takeoff were developed.
Second, once on a growth path, how was the Japanese economy able to sustain
one of the highest rates of growth in world history over an extended period of time?
Having undergone its own industrial revolution in the early twentieth century, Japan
went on to maintain the highest economic growth rate in the world from the 1910s
through the 1980s. This rapid growth, although temporarily set back by the defeat in
World War II in 1945, continued for almost 80 years in total. It is important to
identify the factors that explain this resiliency and constancy.
Third, after the prolonged period of relatively high growth ended with the burst of
the asset-inflated economic bubble in the early 1990s, why has the post-bubble
© Kreab K.K. 2023 1

T. Kikkawa, History of Innovative Entrepreneurs in Japan,
https://doi.org/10.1007/978-981-19-9454-8_1
2 Introduction: What Is Innovation?
stagnation continued to this day? The 1990s were dubbed the “Lost Decade,” but
soon it became the “Lost 20 Years,” then the “Lost 30 Years,” and continues to date.
Uncovering the true causes of Japan’s economic slowdown is an essential task for a
business historian in order to explore ways to revive Japan’s economy.
What Is Innovation: Three Views
To answer these questions, this book pays attention to the changing nature of
innovation—first by clarifying what is meant by innovation. Broadly speaking,
there are two distinct views of innovation: that of Joseph A. Schumpeter and that
of Israel M. Kirzner.1
In a series of works, including “The Theory of Economic Development,”2
“Business Cycles,”3 and “Capitalism, Socialism, and Democracy,”4 Schumpeter
proposed a dynamic view of innovation whose central feature is “creative destruc-
tion.” His concept of innovation emphasizes a new fusion of: (1) development of
new products; (2) development of new manufacturing methods; (3) cultivation of
new markets; (4) cultivation of new raw materials markets; and (5) organizational
renewal. Such innovation can be characterized as “breakthrough innovation” or
“radical innovation”—one that destroys the existing equilibrium.
Alternatively, in his book “Competition and Entrepreneurship,”5 Kirzner presents
a view of innovation that assumes imbalance as an underlying condition, emphasiz-
ing a competitive process that aims for an optimal equilibrium. What is important is
not the destruction of equilibrium, but rather the cumulative, gradual innovation
process that creates equilibrium, or “incremental innovation.”
Of course, in real historical processes breakthrough innovations and incremental
innovations can occur simultaneously i.e., these two distinct views of innovation can
1
The following explanation of views of innovation by Schumpeter and Kirzner is primarily from
Abe, E. (1995). “Kakushin no gainen to keieishi” (The concept of innovation and business history)
in Meiji University, Keiei ronshu(Collection of papers on management), 42(1). Note that in this
paper, the term “kakushin (reformation)” is used rather than “innovation.”
2
Schumpeter, J. A., (1977). Keizai hatten no riron (jo) (Theory of economic development: A study of
entrepreneurs’ profits, capital, credit, interest and economic rotation (I)) (Shionoya, Y., &
Nakayama, I. & S. Tohata trans.). Iwanami Shoten Publishers.
3
Schumpeter, J. A., (1958). Keiki jyunkan ron (I) (Economic cycle theory: Theoretical, historical
and statistical analysis of capitalism processes (I)) (The Japan Research Institute of Financial and
Economic trans.; S. Yoshida supervisor). Yuhikaku Publishing Co., Ltd.
4
Schumpeter, J. A., (1995). Shihon-shugi, shakai-shugi, minshu-shugi (Capitalism, socialism and
democracy) (Nakayama, I., & S. Tohata, trans.). Toyo Keizai Inc.
5
Kirzner, I. M. (1985). Kyoso to kigyoka seishin: Bencha no keizai riron (Competition and business
spirit: Ventures’ economic theory) (Y. Tajima supervisor; M. Eda, I. Kobayashi, S. Sasaki, &
T. Noguchi, co-trans.). Tokyo: Chikura Publishing Company. By contrast, Kirzner’s view of
innovation prioritizes processes of competition toward optimal balance, assuming that imbalance
exists.
The Book’s Structure: Three Time Periods 3
coexist. Recently, however, a third, completely different view has emerged: “dis-
ruptive innovation,” advocated by Clayton M. Christensen of Harvard University in
his 1997 book, “The Innovator’s Dilemma” (Harvard Business School Press).6
“Disruptive innovation” renders existing products obsolete and creates entirely
new value, as opposed to incremental innovation that strives to continuously
improve upon an existing product. Every so often, a low-priced new product is
launched in a market filled with conventional products that are undergoing contin-
uous quality improvement through incremental innovation. These newly introduced
products are cheap, but their quality is so low that they are not initially taken
seriously. However, the quality of such new products occasionally do reach a level
that meets the minimum needs of the mass consumers in the market. At that point,
the conventional, existing products still possess higher quality and price, but once
the new disruptive product meets the consumers’ minimum needs, price competi-
tiveness comes into play and the newcomer rapidly gains market share. Existing
products then lose out devastatingly. This is the mechanism of “disruptive innova-
tion” explained by Christensen.
Disruptive innovation, therefore, can be considered the “third view” on innova-
tion, after breakthrough innovation and incremental innovation. In this book, cases
with these three views of innovation in mind will be analyzed.
The Book’s Structure: Three Time Periods
This book will analyze the process of Japan’s economic development from the Edo
period to the present, with the entire process divided into three time periods.
First, Part I covers the Edo period through the postwar period after the Russo-
Japanese War (1904–1905). The reason for choosing the post Russo-Japanese War
period as the period’s end point is that Japan’s Industrial Revolution was completed
around the latter half of 1900s. Part I examines the first question: “Why was the
Japanese economy able to take off so early and get on a growth path?”
Second, Part II encompasses the second time period from the 1910s to the 1980s
when the Japanese economy maintained a high rate of economic growth relative to
other major economies, with the exception of the 1940s when Japan was engaged in,
and lost, World War II. Part II examines the second question: “How was it possible
for Japan’s economy to sustain high growth over a long period of time, a rarity in
world history?”
Third, Part III covers the period from the 1990s until the present. When the
Japanese economy came to a standstill in the 1990s, it was dubbed the “Lost
6
Christensen, C. M. (2011). Inobeshon no jirenma: Gijutsukakushin ga kyodaikigyo wo horobosu-
toki zohokaiteiban (The enlarged and revised edition of the innovator’s dilemma: When techno-
logical innovation destroys a business giant) (S. Tamada, Supervisor; Y. Izuhara, Trans.). Tokyo:
Shoeisha Publisher.
4 Introduction: What Is Innovation?
Decade,” but the slump continued and before long it became known as the “Lost
20 Years” and even the “Lost 30 Years.” Part III examines the third question: “After
the prolonged period of relatively high growth came to an end with the burst of the
economic bubble in the early 1990s, why has the Japanese economy continued to
stagnate to this day?”
Looking back at the entire process with the three types of innovation in mind, the
first period can be roughly defined as the era of breakthrough innovation, the second
as the era of incremental innovation, and the third as the era that was caught between
breakthrough innovation and disruptive innovation. The reasons will be explained in
detail following the analysis in each section.
Each part is further divided into three sections. The “Overview” section provides
historical background for each period. The “Case Study” section profiles leading
entrepreneurs and examines how they realized their innovations. The “Discussion
Point” section highlights the characteristics of each period in terms of the nature of
innovation. The book’s “Conclusion” summarizes findings from the various ana-
lyses offered throughout the book.
The “Case” sections focusing on the activities of trailblazing entrepreneurs
comprise the central narrative. In business history and related academic fields, a
vast number of case studies have been conducted on the innovative activities of
entrepreneurs. While respecting the findings of case studies from existing scholar-
ship, I add my own interpretations and finally articulate the broader historical
picture. These are the quintessential methods that have underpinned the development
of business history studies. Thus, I will first present the case study findings on the
respective entrepreneurs from existing scholarship. I will then add my own interpre-
tation to the best of my ability, to present a comprehensive picture of the history of
Japanese innovation.
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-
NonCommercial-NoDerivatives 4.0 International License (http://creativecommons.org/licenses/by-
nc-nd/4.0/), which permits any noncommercial use, sharing, distribution and reproduction in any
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included in the chapter's Creative Commons license and your intended use is not permitted by
statutory regulation or exceeds the permitted use, you will need to obtain permission directly from
the copyright holder.
Part I
The Era of Breakthrough Innovations
Overview I: Edo Period
Abstract This section surveys the Edo period’s rapidly expanding economy that
had two markets: the intra-Han within feudal domains and inter-Han market across
feudal domains. It then focuses on the period’s three founders of innovative business
practices: Zen’emon Konoike, Takatoshi Mitsui, and Genzaemon Nakai.
In the first half of Part I, we turn our attention to the Edo period.
Innovation often takes place in a corporate setting. In Japan, companies in the
modern sense were not established until the Meiji period [1868–1912]. However, the
earlier Edo period was important to the history of innovation in Japan, with, a
growing number of scholars re-evaluating the Edo period in recent years as one
characterized by novel developments leading up to the modern era. This revisionist
view considers the Edo period to have experienced several notable innovations.
One key development were the advances in the market economy. The Edo period
had two types of markets: the intra-Han market within feudal domains and the inter-
Han market across feudal domains that covered the entire country. In the intra-Han
market, commercial transactions were conducted between those living in urban
centers near the castle (samurai, artisans, and merchants) on the one hand and
farmers living in rural villages on the other. The size of the intra-Han market was
considerably larger than a comparable market under a typical European feudal
domain where a feudal lord and his subjects (mostly farmers) lived in the same
geographical area. Moreover, surplus rice in each feudal domain was shipped to
Osaka by sea for trading, and revenues were used to purchase goods not available
locally (such as weapons, fertilizers, clothing, etc.), contributing to commercial
activity at the national level.
Active trading across markets brought about rapid economic growth, particularly
notable in the early Edo period (that began in 1603), or from the seventeenth century
through the early eighteenth century. The following is a detailed depiction by the
economic historian Matao Miyamoto:
It is estimated that the national population increased from 12 million to 31.28 million
between 1600 and 1720. The national population stood at 5.5 million around 750 AD, so
it only grew about two-fold in eight-and-a-half centuries leading to 1600. By comparison, we
can see that the population grew rapidly from 1600 to 1720 [. . .] This increase in population
© Kreab K.K. 2023 7

8 Overview I: Edo Period
means that there was an increase in food production to support this. Between the Sengoku
period [1467-1615] and the 17th century, there was unprecedented growth in farmland
cultivation. The cultivated area increased from an estimated 2.07 million chobu [1 chobu
is roughly 1 hectare] around 1600 to 2.93 million chobu by around 1720. This was not just a
quantitative increase but an increase in fertile rice fields ideally located downstream of large
rivers, ensuring stable irrigation. The high-yielding variety of rice (akamai) introduced at
that time also contributed to increased food production. Double cropping, the use of
fertilizer, and innovation in farm tools, such as the Bichu hoe, also helped. In addition,
farmers who had been effectively enslaved under a traditional family-run business model
moved to newly available plots to gain greater independence, leading to stronger incentives
to increase production1.
Thus, the early Edo period, from the seventeenth century to the beginning of the
eighteenth century, was a period of unprecedented economic growth in Japanese
history.
Another feature of “novel developments” in the Edo period was the emergence of
entrepreneurial families who achieved rapid success with innovative business
models in the growing market economy. The Konoike family diversified its business
from the production and sale of sake to shipping and financial services. The
Sumitomo family carried out investment with a long-term vision and successfully
managed the Besshi Copper Mine (a mine directly controlled by the Edo Shogunate).
The Mitsui family introduced innovations that transformed the Japanese retail
industry, before expanding into the financial industry. These “three major merchant
families” are representative of such players. Of these, the Sumitomo and Mitsui
families subsequently grew into zaibatsu and formed large business groups that
would lead Japan into the modern era.
The “three major merchant families” established their roots during the period of
economic growth in the early Edo period. Although the pace of economic growth
slowed from the mid-eighteenth century onward, active market trading spread across
Japan bringing business opportunities. The Nakai family, one of the famed Omi
Merchants, was an entrepreneurial family that seized such opportunities.
In the first half of Part I, we will focus on three founders of innovative business
practices during the Edo period: (1) Zen’emon Konoike of the Konoike family;
(2) Takatoshi Mitsui of the Mitsui family; and (3) Genzaemon Nakai of the Nakai
family. Their business innovations might not necessarily be considered particularly
radical from a global perspective, but it should not be forgotten that Japan was
isolated from the rest of the world through Sakoku, the national isolation system
completed in 1641 (Kan’ei 18). For these entrepreneurs, Japan represented the
1
Miyamoto, M. (2007). “Nihongata kigyokeiei no kigen” (The origins of Japanese-style company
management) in Miyamoto, M., T. Abe, M. Udagawa, M. Sawai, & T. Kikkawa. Nihon keieishi
Edojidai kara nijuisseiki he (shinpan) (The new edition of Japanese business history: from the Edo
period to the 21st century). Tokyo: Yuhikaku Publishing Co., Ltd. The estimated figures here are
from Hayami, A., & M. Miyamoto. (1988). Gaisetsu junanaseiki kara juhasseiki (An outline of the
17th to 18th century). In Hayami & M. Miyamoto (Eds.), Nihonseizai-shi 1: Keizaishakai no seiritu,
junanaseiki kara juhasseiki (Japanese economic history 1: The establishment of economic society,
from the 17th to 18th century). Tokyo: Iwanami Shoten Publishers.
Overview I: Edo Period 9
“world,” and their innovations in Japan were comparable to those in the rest of the
world. In this sense, they can be regarded as breakthrough innovators.
parts of it.
Case 1 Zen’emon Konoike: Successive
Innovations Impacting the Nationwide
Market
Abstract This chapter introduces Konoike Zen'emon and the chain of innovations
by the Konoike family that began with the development of new products, followed
by the cultivation of new markets and renewal in logistics, culminating in the
deployment of an innovative financial business.
The Konoike Family Tree
Shinroku Yamanaka (known later as Shin’emon), who is credited with establishing

Konoike as a merchant family, was born in 1570 (Genki 1) in an era preceding the
Edo period. He began transporting sake to Edo (the so-called "Edo Zumi" business)
following his success in sake brewing around 1598–1600 (Keicho 3–5). After the
establishment of the Edo Shogunate, Shinroku opened an Osaka store engaged in
sake brewing and sales in 1619 (Genna 5).
Then in 1625 he started a water transportation business. A prominent figure in
such shipping was Masashige, the eighth son of Shinroku, born in 1608. When
Shinroku died in 1651 (Keian 3), Masashige inherited his father’s Osaka store and
assumed the name Zen’emon Konoike. Zen’emon’s family, called the “Imabashi
Konoike” as opposed to the original “Itami Konoike” branch, became the most
prosperous among the Konoikes. Masashige died in 1693 (Genroku 6).
Yukimune (1643–96, Kan’ei 20—Genroku 9), who succeeded Masanari as the
second head of the Imabashi Konoike family, assumed the name Kiemon. From the
time of Yukimune, the Konoike family1 began to focus on financial services, starting
with the establishment of a money exchange business in 1656 (Meireki 2). In 1670
Unless explicitly noted otherwise, the description in case 1 is from Miyamoto, M. (1978). Konoike
Zen’emon: Tenka no daidokoro wo sasaeta ryogaesho (Zen’emon Konoike: Exchange merchant
who supported Osaka finance). In Sakudo Y., M. Miyamoto, H. Hatakeyama, M. Seoka, &
M. Mizuhara (Eds.), Edokishonin no kakushinteki kodo: Nihontekikeiei no rutsu (Innovative
behaviors of Edo merchants: The roots of Japanese-style management). Tokyo: Yuhikaku
Publishing Co., Ltd.
1
For simplicity, the expression “Konoike Family” is used to refer to the Imabashi Konoike Family.
© Kreab K.K. 2023 11

12 Case 1 Zen’emon Konoike: Successive Innovations Impacting the. . .
(Kanbun 10), during the time of the second-generation family head Yukimune, the
Konoike family introduced the “financial statement” as a commercial accounting
book with a double entry structure.
Munetoshi (1667–1736, Kanbun 7—Genbun 1), the third head of the Imabashi
Konoike family, assumed the name Zen’emon, with successive heads of the Konoike
family also taking on that name. By the end of the Edo period, the name Zen’emon
had been passed down for ten generations.2 In this case study highlighting their
innovative business practices, all the successive family heads will be collectively
called “Zen’emon Konoike,” including the family’s founder Shinroku Yamanaka, as
well as the second patriarch Yukimune.
Munetoshi, the third Zen’emon Konoike, completed new land development pro-
jects (Konoike Shinden) in 1707 (Hoei 4) and established the “Iesadame Kiroku
Oboe” in 1723 (Hoei 4) that would serve as the Konoike family’s long-lasting
constitution. The family precepts established under Munetoshi's reign prevented
the dispersion of the Konoike family's wealth. Business-wise, Munetoshi stopped
sake brewing and shifted mainly to lending to feudal lords (Daimyo lending).
The Konoike family’s business continued even after the Meiji Restoration.
However, the Konoike family never became a zaibatsu, in contrast to the Mitsui
and Sumitomo families that were part of “the Big Three merchant families” of the
Edo period, and evolved into zaibatsu during the Meiji period.
Development of Clear Sake and Its Shipment to Edo
The first in a series of business innovations by the Konoike family was the devel-
opment of clear sake [Seishu]. It is said that the clear sake we know today, different
from the traditional cloudy sake, was created at the end of the Middle Ages. Thus,
the Konoike family did not truly invent clear sake. It is also assumed that others were
already engaged in the so-called “Edo Zumi,” or transportation of sake to Edo.
Matao Miyamoto asked the following question and then provided his answer: “Why
is Konoike still regarded as the founder of sake brewing and Edo Zumi in various
studies?”3 Miyamoto then proposes an answer: “Konoike’s sake, based on advanced
technology, gained a higher reputation than his competitors’ products, perhaps the
reason why Konoike was talked about as an innovator in this industry.”4
Miyamoto describes the “new business” launched by the Konoike family—the
shipment of clear sake to Edo—as follows:
1) At first, they used a two-to vat [one "to" is about 18 liters], but when they saw strong
demand they replaced it with a four-to camphor vat, and counting a pair of vats on a horse as
a single horse load they regularly made dozens of such shipments to Edo by land; 2) The
2
Konoike Kiemon-Yukimune, the second president, is included.
3
Op. cit., Miyamoto, M. (1978). Zen’emon Konoike, p. 55.
4
Ibid., p. 56.
Expansion into Financing and Lending to Daimyo 13
shipments were sold directly to the daimyo estates; 3) According to the first single shipment
of 4 to, the cost for one round trip to Edo was 350-360 mon, with sales at 8 kan mon. Thus,
the gross profit margin was an astonishingly high 7 kan 650 mon to 7 kan 640 mon5. . . . The
profit Konoike made from the Edo Zumi business can be characterized as the founder's
profit – one deriving from two innovative practices: selling a new product, in a newly
cultivated market.6
The Beginning of [Konoike’s] Water Transport Business
As the scale of sake shipment to Edo increased, the Konoike family switched the
transportation method from land to sea, thus initiating its water transport business. At
that time in 1625 (Kan’ei 2), “Shinroku was 56 years old and Masanari was eighteen
years old.”7 The Konoike family’s innovation, beginning with the development of a
new product (clear sake), led to the innovation in logistics (its foray into the water
transport business) following the cultivation of the new market (Edo Zumi or clear
sake shipment to Edo). This was indeed a “chain of innovations.”
Miyamoto wrote of the first Zen’emon Konoike, Masashige, who focused on the
shipping business: “With more than 100 man-powered boats, he reportedly
transported his own sake and general cargo, especially rice consignment from feudal
lords in the western part of the country,”8 adding: “However, it seems that the
shipping business never became the main business of the Konoike family.”9
Expansion into Financing and Lending to Daimyo
The Konoike family’s main business following the second generation Zen’emon
Konoike, Yukimune, was financial—starting a money exchange business in 1656
(Meireki 2). At that time, “first-generation Masashige was 48 years old, and second-
generation Yukimune was 14 years old.”10
Miyamoto explains how the Konoike family shifted to the financial business
relative to the general trend of wholesalers at the time:
In the early days, Konoike's commodity trading was, so to speak, "yorozu-ya" style,
handling many types of products. This broad range of products handled by Konoike can
be attributed to the fact that the family entered the commodity trade with a variety of
opportunities, including sake brewing, sales of sake to Edo, and the shipping business.
This "yorozu-ya" style of business was a common characteristic of wholesalers in the first
5
Ibid., p. 57.
6
Ibid., p. 58.
7
Ibid., p. 59. The figure uses East Asian age reckoning.
8
Ibid.
9
Ibid.
10
Ibid., p. 63.
half of the 17th century. In contrast, many of the wholesalers that emerged from the latter
half of the 17th century were specialized wholesalers. Unlike the early wholesalers who sold
various products mainly on consignment from others, this new generation of wholesalers
sold their own products on their own accounts. Parallel to the rise of specialized wholesalers,
money changers emerged as financial specialists. This socioeconomic shift toward commer-
cial and financial specialization was the background of Konoike's gradual withdrawal from
commodity trading and full-scale entry into the money exchange business from the Genroku
period onward.11
As mentioned in Overview I above, one of the key aspects of “novelties” in the

Edo period was the significant development of a market economy that was divided
into two parts: one within a feudal domain [intra-fief] and the other crossing the
borders of feudal domains [inter-fief]. The inter-fief market can be described as a
“Shogunate-controlled commodity distribution system.” According to Miyamoto,
the Konoike family’s financial business occupied a “central position” in this:
The Konoike’s linked the flow of money from the daimyo side (Osaka to Edo) and the
merchant side (Edo to Osaka) through the issuance of money orders, reducing the social cost
of sending and receiving cash by converting it to money order fees. This enabled them to
function as specialized financiers that facilitated commodity transactions. Konoike’s service
was indispensable in the circulation of goods and money under the Shogunate system in
which the annual tribute rice collected under the Kokudaka system is exchanged for cash in
Osaka, and the money is sent to Edo for the purchase of consumer goods shipped from
Osaka to Edo. In this sense, Konoike came to occupy the central position within the
Shogunate-controlled commodity distribution mechanism.12
The Konoike family, which had come to focus on finance, withdrew from the
family’s original business of sake brewing after the death of the second patriarch,
Yukimune. From the third Zen’emon, Munetoshi, the Konoike family concentrated
on financial lending to feudal lords. Miyamoto offers an interesting argument:
Lending by merchants to feudal lords, or "daimyo lending," is often considered to have
become a necessity for impoverished feudal lords, as merchants were growing increasingly
wealthy. However, this view is not necessarily correct. It is true that the impoverishment of
the Daimyo was a reality back then, and as a result cases of non-payment or defaulting were
present since the early days. However, if the impoverishment of the Daimyo was a long-term
trend and the merchants were aware of this fact, no rational merchant would have contin-
uously extended loans to such "bad corporations." Nor would they have established the
money changing business as their full-time occupation. Regardless of the outcome, behind
the decision by Konoike and others to specialize in "daimyo lending" there must have been
the belief that this was a lucrative and stable business. Their belief lay in the recognition that
the feudal lords had a solid economic foundation so long as they controlled the land, the
greatest source of wealth at the time, and rice, the largest commodity.13
11
Ibid., p. 62.
12
Ibid. pp. 67–68.
13
Ibid. p. 78.
“Financial Statement” and Double-Entry Bookkeeping 15
From all this Miyamoto concludes that “Konoike’s daimyo lending was lending
tied to the shipping service for rice and other tribute goods, and in this respect their
daimyo lending was innovative.”14
“Financial Statement” and Double-Entry Bookkeeping
As we have seen, the chain of innovations by the Konoike family that began with the
development of new products, followed by the cultivation of new markets and
renewal in logistics, culminated in the deployment of an innovative financial busi-
ness. In the process, the Konoike family pioneered accounting practices that are
important even from a global perspective: establishing the “financial statement” in
1670 (Kanbun 10) within the family. This ledger is “one of the oldest surviving
double-entry accounting books used by a merchant family.”15 Accounting historian
Noboru Nishikawa states:
During the Edo period, as a result of the Sankin Kotai system [a periodic requirement for
feudal lords to serve in Edo away from their home], credit transactions developed between
Kyoto (the industrial center) and Osaka (the center of commerce and trade) on one end, and
Edo (the capital of consumption) on the other. [. . .] In the late 17th century, double-entry
bookkeeping developed among the large merchant families of the Kansai region. The
surviving examples of double-entry bookkeeping from the 18th century are almost exclu-
sively from large merchant families in the Kansai region.16
The Konoike family's financial statement is representative of the double-entry

ledger17 developed in the late 17th century in the large merchant families of the
Kansai region, as noted by Noboru Nishikawa. He describes it as follows:
There are various theories but no conclusive evidence as to whether the double-entry
bookkeeping techniques used during the Edo period originated in Japan or were introduced
from Europe through the Shogunate-controlled Nanban trade [with overseas]. However, not
14
Ibid. p. 79.
15
Ibid. p. 69.
16
Nishikawa, N. (2004). Shoka no choaiho to zaimu-kanri (Merchant families’ accounts-balancing
method and finance management). In The Business History Society of Japan, & H. Yamazaki
(Eds.), Nihon keieishi no kiso chishiki (Basic knowledge of Japanese business history). Tokyo:
Yuhikaku Publishing Co., Ltd. The calculation notepad of the Konoike family was representative of
the double entry bookkeeping format developed among the giant commerce families in and around
Osaka in the latter half of the 17th century, as noted by Noboru Nishikawa.
17
According to Noboru Nishikawa, “the essence of double entry bookkeeping is that all transactions
are understood from the two points of view in recording them and that the balance sheet, the profit
and loss statement, and other financial statements can be created based on the calculation of the
account books” (op. cit., Nishikawa, N. (2004), p. 22). Nishikawa concluded that “it can be said that
the high-class account books were a type of double entry bookkeeping,” (ibid., p. 22), introduced by
the commercial families in Osaka area in the latter half of the 17th century.
even traces of Italian-style bookkeeping18 have been found in surviving historical artifacts.
Thus, taking into account the development of long-distance trade and credit economies in the
late 17th century Japan, the Japanese-style double-entry bookkeeping practice is thought to
have emerged indigenously.19
Based on Nishikawa’s view, the Konoike family created their double-entry book-
keeping system on their own. As Japan was largely cut off from the rest of the world
under its isolationist policy, domestic Japan meant the “world” for the Konoikes. In
this sense, the Konoike family created the “world’s first” double-entry bookkeeping
system, and they can be rightly called a breakthrough innovator.
The Konoike Family After the Meiji Restoration
The series of innovations introduced by the Konoike family continued through four
generations: Shinroku Yamanaka, the founder; Masashige, who was the first
Zen’emon; Yukimune, the second Zen’emon; and Munetoshi, the third Zen’emon.
In subsequent generations, however, the Konoike family’s innovative streak came to
a standstill. Daimyo lending, once a thriving business model in terms of its link to
transport of tribute rice and other goods, had fallen to “a catastrophic state in
the nineteenth century”20 due to the decline in profitability following the upheaval
in the Shogunate system. Miyamoto sums up the situation of the Konoike family
after the Meiji Restoration as follows:
During the end of the Shogunate and the start of the Meiji Restoration period, the family’s
assets substantially decreased, abetted by inflation. In addition, about three-fourths of the
Daimyo lending bonds, amounting to about 1.2 million ryo in total, were written off by the
new Meiji government, and the family suffered a major blow. In 1877 (Meiji 10), the 10th
generation Zen’emon, Yukitomi, together with branch family members, established the 13th
National Bank. This bank became the privately owned Konoike Bank in 1897 (Meiji 30),
then the Konoike Bank Kabushiki Kaisha in 1919 (Taisho 8), and in 1933 (Showa 8) merged
with the Sanjushi Bank and with the Yamaguchi Bank to become the Sanwa Bank. During
the Meiji period, the Konoike family as one of the wealthiest merchants in Osaka took a
stake in new businesses such as the Osaka Trade and Exchange Inc., Horaisha, Nippon Life
Insurance, and Osaka Warehouse, but did not actively participate in the management of these
companies. Konoike adopted a conservative approach of maintaining the family fortune
through its focus on the banking business, and in 1921 established the Konoike Gomei
Kaisha, but did not go so far as to form a zaibatsu.21
Unlike Mitsui and Sumitomo, Konoike did not grow to be a zaibatsu, due to the
conservative attitude of its management team, according to Miyamoto. Konoike,
18
The technique of European style double entry bookkeeping was completed in Italy toward the end
of the 15th century; it spread throughout Europe under the name of “Italian bookkeeping.” See op.
cit., Nishikawa, N. (2004), p. 22.
19
Op. cit., Nishikawa, N. (2004), p. 22.
20
Op. cit., Miyamoto, M. (1978). Zen’emon Konoike, p. 81.
21
Op. cit., Nishikawa, N. (2004), p. 74.
The Konoike Family After the Meiji Restoration 17
developing a series of innovations for over four generations starting with the
founder, veered off the growth path over time because of its conservatism. How
ironic history is.
parts of it.
Case 2 Takatoshi Mitsui: New Business
Opportunities and the Retail Revolution
Abstract This chapter introduces Takatoshi Mitsui, one of the “Big Three Mer-
chants” and his retail innovation in the Edo period.
Brief Biography of Takatoshi Mitsui
Takatoshi Mitsui (1622–94, Genna 8—Genroku 7) was the man who brought
prosperity to the Mitsui family, one of the “Big Three” merchants. Takatoshi was
born in Ise-Matsusaka (Matsusaka City, Mie Prefecture) in 1622 (Genna 8).
The Mitsui family’s ancestor was a small-scale feudal lord serving the Rokkaku
clan, but when that clan was defeated in a battle against Nobunaga Oda, the lord fled
to Ise. By the lifetime of Takatoshi’s father the family had come to operate a pawn
shop as well as a business dealing in sake, miso, and soy sauce in Matsusaka. The
store brand “Echigo-ya”was derived from [the younger] Takatoshi’s grandfather,
Takayasu Mitsui, who held the title “Echigo-no-kami” (guardian of Echigo prov-
ince). However, the older Takatoshi’s wife and the younger Takatoshi’s mother,
Shuho, actually ran Echigoya’s day-to-day business operation. In the “The Mitsui
Mind that was Cultivated in Matsusaka,” published by the Mitsui Public Relations
Committee, states:
While Takatoshi [the younger] is considered the founder of the Mitsui Group, he did not start
his business from scratch. His mother Shuho was a very intelligent woman, so skilled in
business that she practically managed the “Echigo Lord's Sake Brewery” at that time. She
was extremely thrifty, but at the same time very generous and faithful to her customers. The
youngest of four sons and four daughters, Takatoshi probably grew up watching his mother
when she was at her best as a merchant.1
A major turning point for Takatoshi was his first trip to Edo at the age of 14 (under
the traditional Japanese age counting system). Makoto Seoka describes subsequent
events as follows:
1
Mitsui Public Relations Committee, Mitsuike hassho no chi: Matsusaka (The Land of Mitsui’s
origin: Matsusaka). https://www.mitsuipr.com/history/edo/01/ The original was published in
“MITSUI Field,” the communication magazine of the Mitsui Group, vol. 3, 2009 Summer.bu.
© Kreab K.K. 2023 19

20 Case 2 Takatoshi Mitsui: New Business Opportunities and the Retail Revolution
Takatoshi first went to Edo in 1635 (Kan’ei 12). At that time, his father had already passed
away and his mother had joined a Buddhist temple and was living a monastic life.
Takatoshi’s reason for going to Edo was to help his eldest brother Toshitsugu run the Edo
branch of the business. At the time, Toshitsugu had his own store in Kyoto and left the
operation of the Edo branch to his younger brother, Shigetoshi. But four years later,
Shigetoshi returned to Matsusaka to support the family’s aging mother. As a result,
Takatoshi became the Edo store manager and the business thrived. He worked hard,
dreaming of becoming a "Kyoto merchant who owns a store in Edo." However, back in
Matsusaka, Shigetoshi died at the young age of 36. Then Toshitsugu, who had always felt
threatened by Takatoshi’s outstanding entrepreneurial abilities, used Shigetoshi’s death as an
excuse to order Takatoshi to return to Matsusaka to take care of their elderly mother.2
After returning to Matsusaka in 1649 (Keian 2), Takatoshi Mitsui eventually started
his own financial business, lending also to feudal lords. In 1673 (Enpo 1), after the
death of his eldest brother Toshitsugu, Takatoshi opened a kimono store in Honcho
1-chome, Edo. Takatoshi, who became the patriarch of the Mitsui family, introduced
innovative storefront sales (Tanasaki Uri) that later came to be known as the “Edo
marketing method.” He achieved great success with a series of retail innovations, to
be discussed in detail in the next section. Takatoshi’s mother, Shuho, passed away in
1676 (Enpo 4).
Takatoshi Mitsui, achieving great success with his “Edo marketing method,”
moved his business headquarters from Matsusaka to Kyoto in 1686 (Jokyo 3). He
opened a money exchange store, setting the stage to focus on the financial business.
Four years later in 1690 (Genroku 3), the Mitsui family, under the name “Echigoya
Hachirobei-Mitsui Jiroemon”, received an order to oversee the Osaka Gold and
Silver Exchange of the Shogunate.
In 1694 (Genroku 7), Takatoshi died. Shortly before his death he ensured that his
estate would not be divided among his children for the rest of their lives by drafting a
will that included instructions for handling his property.
Groundbreaking Nature of “Tanasaki Uri” (Store-Front

Sales)
What kind of retail innovation did Takatoshi Mitsui introduce at his Edo store? The
Mitsui Public Relations Committee publication, “The Birth of Echigo-ya and
Takatoshi’s New Business Method,” explains:
When his male children reached the age of 15, Takatoshi sent the boys to apprentice with
merchants in Edo. He also sent other young men that he recognized as having potential to
Edo as apprentices, steadily laying the groundwork for his future success in Edo. In Enpo
2
Seoka, M. (1978). Mitsui Takatoshi: Edo-shoho no soshisha (Takatoshi Mitsui: Initiator of
Edo-style business). In Y. Sakudo, M. Miyamoto, H. Hatakeyama, M. Seoka, & M. Mizuhara
(Eds.), Edoki shonin no kakushinteki kodo: Nihonteki keiei no rutsu (Innovative behaviors of
merchants in the Edo period: The roots of Japanese-style management) (pp. 151–152). Tokyo:
Yuhikaku Publishing Co., Ltd.
Groundbreaking Nature of “Tanasaki Uri” (Store-Front Sales) 21
1 (1673), 24 years after Takatoshi returned to Matsusaka, his eldest brother Toshitsugu died
of illness. With his mother's permission, Takatoshi decided to relocate to Edo, achieving his
long-cherished dream. Takatoshi was already 52 years old. His sons, who were in training in
Edo at the time, included: the eldest, Takahira, 21 years old; the second, Takatomi, was 20;
and the third, Takaharu, was 17. Takatoshi instructed his sons to rent a small store in Edo
Honcho 1-chome, the most prestigious kimono district in Edo, and opened "Mitsui Echigo-
ya Drapery Shop" (Echigo-ya) under the brand name "Echigo-ya Mitsui Hachiroemon". He
next opened a purchasing office in Kyoto managed by Takahira, and the Edo store by
Takatomi. Takatoshi did not go to Edo but issued instructions from Matsusaka.
The trade name "Echigo-ya" was inherited from a store in Matsusaka. The name
"Hachiroemon" comes from the fact that Takahira changed his own name to "Mitsui
Hachiroemon Takahira" emulating (his father) Takatoshi's adulthood name "Mitsui
Hachirobei Takatoshi." The name "Hachiroemon" became the honorary family name of
the Mitsuis, assumed by successive generations of the patriarchs.
Although he assigned experienced children and staff members to his newly opened kimono
stores, there were already several large, well-established kimono stores in Edo at the time.
But Takatoshi developed brand new business methods through his ingenuity. His represen-
tative business practices were "store-front sales " and "selling products in cash without
credit." At that time, the two most common methods of selling kimono at first-class kimono
stores were "Misemono Uri" (demonstration sales) in which the shopkeeper would go to a
customer’s home, show the customer a sample, take an order, and tailor-make the kimono, or
"Yashiki Uri" (house sales) in which the shopkeeper would bring the pre-made goods
directly to the customers and sell them. Payment was made either twice a year at the Bon
Festival time [summer] and at the end of the year, or once a year in December. As a result,
nonpayment and interest inflated the price tag, leading to poor turnover of funds. Takatoshi
abolished this system and switched to store-front sales, lowered the price, clearly stated the
price, and encouraged cash-only transactions. The revenue from cash-only sales accelerated
the turnover of funds, and this was especially useful to suppliers who received payments
twice a year. Another novelty was the practice of "Kiri Uri" (fractional sales) which was
forbidden among kimono dealers at the time, as kimono fabric was sold only by fixed length.
However, Takatoshi sold it in custom lengths in response to customer demand, and thus
cultivated a huge new market among Edo townspeople. In addition, the "tailoring sales"
(shitate uri) service, in which tailoring was done instantly on the spot, also became very
popular. Echigo-ya eventually became known to the townspeople as an equal to other
prosperous venues such as theaters and fish markets (Shibai Senryo, Uogashi Senryo,
Echigoya Senryo), who all earned 1,000 ryo daily.3
The traditional “demonstration sales” and “house sales” were retail methods that
targeted wealthy individuals who could afford to own their own large houses. In
contrast, the “store-front sales” initiated by Takatoshi Mitsui were for mass market
customers. By the late seventeenth century, the market economy in Edo had devel-
oped enough that townspeople could walk in and purchase kimono. Seizing this new
business opportunity, Takatoshi spearheaded a groundbreaking innovation in retail-
ing: the Edo marketing method.
3
Mitsui Public Relations Committee, Echigoya tanjo to Takatoshi no shinshoho (The birth of
Echigoya and Takatoshi’s new business method). https://www.mitsuipr.com/history/edo/02
The Ground-Breaking Nature of Takatoshi Mitsui’s Retail

Innovation
Business historian Masahiro Uemura labels the retail innovation by Takatoshi Mitsui
as “cash-only, clearly marked price sales,” describing it as follows:
Among the marketing methods of the Edo period, the "cash-only, clearly marked price sales”
method is considered unique and epoch-making. This has become established as a contem-
porary sales method, a low-profit, high-volume method of selling goods. During the Edo
period, continuous and long-term commercial relations were the norm, so credit sales were
established as a standard practice, and the retail industry was no exception. It was the Mitsui
family who developed an innovative commercial method to break such norms and succeeded
in rapidly expanding its business.4
The cash-only sale of kimono with clearly marked prices was introduced by Takatoshi
Mitsui, the founder of the Mitsui family. It was an innovative sales method that broke with
conventional practice, along with selling wholesale to regional merchants, store-front
retailing, and fractional sales of kimono fabric. Traditionally, it was common for a kimono
merchant to visit samurai mansions in Edo individually, take orders based on the customer's
needs, and then sell products on a credit basis. However, as Edo grew rapidly, there was a
great demand not only from samurai families but also from the general public. In order to
meet these new demands, a new way of sales became necessary. Takatoshi Mitsui opened a
store in Honcho 1-chome in Edo in 1673 (Enho 1), but in order to stand out amid a group of
older, established stores, he needed to devise a new business method. Thus, the cash-only,
clearly-marked price sales method was born. Since there was no need for bargaining, new
customers had peace of mind when purchasing goods, and because transactions were settled
in cash, the price was kept low, allowing for a casual shopping experience. Also, for Mitsui,
since cash sales enabled quick and reliable cost recovery and cost reduction, mass sales
became possible. It saved time involving price negotiation and was suitable for a city like
Edo, a crossroad for large unspecified numbers of people.5
As Uemura notes here, the retail innovation implemented by Takatoshi Mitsui

subsequently “took root as a contemporary sales method.” Front-of-store sales,
replacing traditional methods such as “demonstration sales” and “house sales,”
subsequently became the dominant retail method, continuing to this day. It is only
recently that e-commerce has come to shake up store-front sales. Although the
advent of this type of retailing was found in other countries, it is important to note
that Takatoshi Mitsui introduced it while Japan was closed to the world. Japan was
separated from overseas under the isolationist policy, and for Takatoshi as well as
other merchants, Japan was the “world.” Under such circumstances, Takatoshi, who
introduced the “world’s first” retail revolution, was another standard bearer of
4
Masahiro Uemura noted that “Of course not all of the sales of fabrics by Mitsui were settled with
cash; conventional credit sales were also in use, and in some cases credit sales were increasing.” In
Uemura, M. (2009). Maaketingu to butsuryu (Marketing and logistics). In M. Miyamoto, &
M. Kasuya (Eds.), Koza Nihon keieishi daiikkan: Keieishi, Edo no keiken 1600–1882 (Vol.1 of a
lecture on Japanese business history: Edo experience 1600–1882) (p. 238). Kyoto: Minervashobo.
5
Op. cit., Uemura, M.. (2009), pp. 225–226.
Introduction of the Joint Ownership System 23
breakthrough innovation, as in the case of the Konoikes who introduced double-

entry bookkeeping.
Introduction of the Joint Ownership System
With the success of Takatoshi Mitsui’s retail innovation, the Mitsui family made
great advances and became one of the “Big Three Merchants”. The Mitsui family’s
business had two pillars: a kimono dealer and a money changer. In 1710 (Hoei 7), the
family established “Omotokata” as an organization that supervised both their
kimono stores and their money changing businesses.
It was Takahira, the eldest son of Takatoshi Mitsui, who created “Omotokata.”
Takahira also followed in the footsteps of his father in handling family property. As
noted, Takatoshi had created a mechanism to keep the family property from being
divided during his children’s lifetime. Takahira institutionalized this within the
family’s constitution by personally preparing the document “Sochiku’s Will.”6
Miyamoto explains this development as follows, based also on Shigeaki
Yasuoka’s theory:
In the case of the Mitsui family, the founder Hachirobei Takatoshi, hailing from
Ise-Matsusaka, went to Edo, opened a kimono shop, and made a fortune. By the time of
his death in 1694 (Genroku 7) he owned kimono stores and money changing stores in Edo,
Kyoto, and Osaka, and continued to run multiple stores. Three months before his death,
Takatoshi wrote a will with instructions on the division of the property. The total assets were
to be divided into 70 parts, and a total of 6 sons and 3 sons-in-law (adoptees of the Mitsui
family), a total of 9 people, were to be given the inheritance in proportions prescribed by
Takatoshi. However, after Takatoshi's death, the heirs submitted a letter to his eldest son,
Takahira, requesting that the bequeathed assets be managed without splitting it as their
common property.7
While the pledge submitted by Takatoshi's heirs to the second-generation patriarch,
Takahira, was valid for only one generation, Takahira wrote a will (called Sochiku’s Will)
in 1722 (Kyoho 7), according to which the "principal money" was to be divided into
220 parts. He did not approve individual claims by equity right holders, but rather
established collective asset management as the house rule. Since then, the equity interest
of "Omotokata" has been held only by Mitsui's nine families (later increased to 11 families).
In addition, division of ownership and disposal of assets was not allowed, and each
household, as a rule, practiced sole inheritance. So ownership became exclusive and
permanent.
According to Shigeaki Yasuoka, it is more accurate to explain the ownership of the Mitsui
family's "Omotokata" through the concept of "Gesamteigentum" (joint ownership) of Ger-
manic village communities, rather than that of "Miteigentum" (co-ownership) in line with
Roman law. In other words, in "joint ownership," the group of asset owners has the right to
6
“Souchiku” is the Buddhist name of Takahira Mitsui.
7
Miyamoto, M. (2009). Shijo to kigyo (Markets and companies). In op. cit., M. Miyamoto, &
M. Kasuya (Eds.), Vol.1 of a lecture on Japanese business history: Experience of business history:
Edo Experience 1600–1882) (p. 63).
manage the entire asset, and each of asset owners has the right to claim profits from the asset
he owns. As stressed by Yasuoka, joint ownership was the concept underlining the Mitsui
family's approach toward “Omotokata.”8
Since the joint ownership system introduced by the Mitsui family did not allow for
the division of family assets and blocked any individual property owners’ rights to
dispose of property, it served to restrict ownership. In time, store managers grew
more powerful than Mitsui family members, and consequently the family came to
hire professional managers during the Meiji period. The hiring of professional
managers laid the conditions for Mitsui’s development as a zaibatsu, as will be
discussed in Cases 4 and 5 of this book.
parts of it.
8
Ibid. p. 64.
Case 3 Genzaemon Nakai: A Regional
Merchant Thriving on the National Stage
Abstract This chapter introduces Genzaemon Nakai, a lacquerware merchant from

the Omi region (Shiga Prefecture), and the establishment of a new goods circulation
business model based on a network of joint ventures.
The Rise of Omi Merchants
Merchant families that introduced innovative practices during the Edo period were
not limited to the “Big Three Merchant Families,” Konoike, Sumitomo, and Mitsui.
The Nakai family, one of the Omi merchants to be discussed in this chapter, were
also standard-bearers of innovation. Author Yotaro Sakudo first presents
Schumpeter’s theory of innovation with creative innovation as its core concept,
and then asks whether it is possible to verify the existence of such creative innova-
tors in the Edo period.1 Sakudo goes on to say that “Schumpeter’s perspective is also
extremely useful in examining the nature of innovation regarding merchants’ entre-
preneurial activities during the Edo period”2:
These families are all engraved with the history of innovative entrepreneurial activities. The
Konoike family, which started off with sake brewing business, moved on to the shipping
business, and then started a money changing business, before establishing daimyo lending as
its core business; the Sumitomo family, which started from pharmaceuticals and publishing,
and later changed to copper refining, ran diversified businesses involving copper trading and
copper mining, currency exchange, and rice warehousing; the Mitsui family accomplished
the contemporary Edo merchants' dream of becoming the "Kyoto merchant with an Edo
store" through kimono and money exchange businesses; the Nakai family accumulated
capital through the "mochikudari akinai" business [selling their home region's product in
another region and bringing back the other region's product for sale at home], using the Omi
1
Sakudo, Y. (1978). Edoki shonin no keifu to tokushitsu (The genealogy and features of merchants
in the Edo period). In Y. Sakudo, M. Miyamoto, H. Hatakeyama, M. Seoka, & M. Mizuhara, (Eds.),
in op. cit., Innovative behaviors of merchants in the Edo period: The roots of Japanese-style
management (p. 3).
2
Ibid.
© Kreab K.K. 2023 25

26 Case 3 Genzaemon Nakai: A Regional Merchant Thriving on the National Stage
Hino region's medicinal products, opening stores in various parts of Japan such as Sendai,
Otawara, Nagoya, Onomichi, and Kitsuki, in addition to Osaka, Kyoto, and Edo.3
In other words, Sakudo regards the Nakai family as an embodiment of innovation on

a par with the “Big Three Merchant Families.” As already mentioned in Overview I,
one key aspect of “novelties” in the Edo period was the development of the market
economy that brought about expanded business opportunities to regional merchants
such as those in the Omi region. It became possible for them to enlarge their
business, peddling and opening stores all over the country, and to accumulate
capital—a brand new business model at the time.
Masamichi Mizuhara explains:
The extent of Omi merchants' capital accumulation through peddling was manifested in the
form of store openings. They also used these outlets as a foothold for the peddling business,
but gradually shifted to store management, opening outlets wherever they were likely to be
able to eat “rice from a pot” or locations of a large consumer population, except Hokkaido.
At their outlets, Omi merchants sold their goods to local merchants, and also travelled,
peddling their wares in surrounding farm villages. However, since these were mainly credit
sales, the cash-strapped farmers were often forced to produce merchandise requested by Omi
merchants, in lieu of cash payment. This consequently led to the development of the
commodity trade in the Edo period. For example, the 4th generation Genzaemon of the
Nakai family was commissioned to promote industry in the Sendai territory. He lent funds to
the locals to increase the production of raw silk and safflower.
Omi merchants set up branch networks across Japan and played a role in promoting the
development of the monetary economy. Typically, family headquarters remained in Goshu,4
and wives and children also stayed there. The Omi merchants did not keep merchandise in
their home region but rather gave instructions to branch managers who were in charge of
running regional outlets. The head of the family traveled almost year-round to inspect his
regional outlets, a practice known as "Mise mawari."5
Thus, the advancement of commodity trading during the Edo period was a prereq-
uisite for Omi merchants to play an active role on a national scale. In turn, the
activities of Omi merchants, including those of the Nakai family, further promoted
the commodity trade, leading to synergy between the two.
3
Ibid., p. 6–7.
4
Another name of Oumi no koku.
5
Mizuhara, M. (1978). Nakai Genzaemon: Omi shonin no tatenpo keiei (Genzaemon Nakai: Omi
merchants’ management of multiple stores). In Y. Sakudo, M. Miyamoto, H. Hatakeyama,
M. Seoka, & M. Mizuhara (Eds.) in op. cit., Innovative behaviors of merchants in the Edo period:
The roots of Japanese-style management (p. 179).
The Nakai Family Tree 27
The Nakai Family Tree6
The ancestors of the Nakai family moved to Hino, Omi (Hino-cho, Gamo-gun, Shiga
Prefecture) around 1584 (Tensho 12). They engaged in the manufacture and sale of
Hino lacquerware (Hino Nuri) and expanded their peddling area, but after the death
of the family head Mitsuharu in 1725 (Kyoho 10), the family rapidly fell into
hardship. The family was saved from crisis by Mitsuharu’s heir, Mitsutake, who
solidified the foundation of the Nakai family. Through hard work, Mitsutake, born in
1716 (Kyoho 1), gradually increased the family’s wealth from 1734 onward (Kyoho
19) by peddling Hino’s specialties, such as lacquerware, compound medicine, and
“futomono” textiles.7
According to Masamichi Mizuhara, “The first full-scale regional outlet was
established in 1749 (Kan’en 2) in Otawara, Shimotsukeno-kuni [today’s Tochigi
Prefecture area], located in a strategic geographical area leading to the Oshu region
[today’s Tohoku region]. This was when Mitsutake was 34 years old. Although his
initial capital was two ryo, by that time it had grown to 775 ryo and 1 bu.”8
Mizuhara continues:
At the Otawara store, the types of products handled grew to include multiple varieties of
medicines in addition to the existing compound medicine and “futomono” fabric, and the
concurrently run joint venture pawn shops and breweries also expanded from the Kanto
region to the southern part of Ou region, securing a foothold for expansion into the Tohoku
region. Thus, in 1769 (Meiwa 6), when the family’s business celebrated its 35th anniversary,
total assets had reached 7468 ryo and 2 bu, and the family was listed in Japan's ranking of
highest earners. That year that the Nakai family made great strides. They simultaneously
opened outlets in Sendai, Fushimi, and Tango, with the family fully shifting from peddling
to a store-based business. The purpose was to carry out the so-called "goods circulation"
(sanbutsu mawashi) method of trade: First, transport cotton fabrics and "furute"9 that were in
poor supply in the Tohoku region to Tohoku from the Kansai region. Then transport raw silk,
safflower, and "aoso"10 from Tohoku to Kansai. Thereafter, transport raw silk to the textile
manufacturing areas of Kyoto or Tango.11
The deployment of this “goods circulation” method on a large scale using a type of
intra-company, product forwarding mechanism was the innovative business model
through which Mitsutake managed to revive the family’s fortune. The prerequisite
for its success was the development of a national-scale market during the Edo period,
but the Nakais in turn also helped encourage such a development. Some of the stores
opened by Mitsutake were unsuccessful, but as a whole the store network continued
to grow as a whole, with openings in Soma, Imaichi, Edo, and Kyoto and elsewhere.
6
The description of this period comes primarily from op. cit., Mizuhara, M. (1978), pp. 184–191.
7
Textiles with thick threads.
8
Op. cit., Mizuhara, M. (1978), p. 186.
9
Old and used clothes etc.
10
A perennial in the nettle family, used as a material of high-grade textiles.
11
Op. cit., Mizuhara, M. (1978), pp. 186–187.
“The most successful one was the Sendai store, which in 1803 (Kyowa 3) had assets
of over 49,405 ryo on a stand-alone basis.”12
Mitsutake, who effectively founded the Nakai family, had come to assume the
name Genzaemon. After that time, the name was passed down from generation to
generation. In the present “Case 3,” the founder Mitsutake and other successive
Genzaemons will be collectively called “Genzaemon Nakai,” and their business
activities examined. Mitsutake retired in 1794 (Kansei 6), handing over the leader-
ship to his second son, Mitsumasa.13 Mitsutake died in 1805 (Bunka 2).
Mitsumasa, the second generation Genzaemon Nakai, adopted the business
model pioneered by his father and continued to open stores nationwide in places
such as Osaka, Uzen-Tendo, Rikuzen-Ishinomaki, and Bungo Kitsuki. Mizuhara
states that “In 1797, Mitsumasa inherited a fortune of 30,100 ryo, but he was a
remarkably talented businessman, and increased his assets to 56,299 ryo by the time
of his death just over a decade later, in 1808 (Bunka 5).”14 It is notable that in the
“Nakashi Seiyo,” a collection of family precepts, Mitsumasa warned against joining
forces with feudal powers.
The Nakais continued to open new outlets during the leadership of the third
generation Genzaemon, Mitsuhiro. These were the Nagoya store and the Minato
store (a branch of the Ishinomaki store). According to Masamichi Mizuhara,
“Mitsuhiro increased the family’s wealth from over 50,000 ryo to over 110,000
ryo in the twenty-five years before his death at the age of 48 in 1833, so that he too
fully utilized his talent as a businessman.” 15
The Nakai family business that had been growing steadily up to this point took a
darker turn during the reign of Mitsumoto, the fourth Genzaemon. At the time, the
Tokugawa Shogunate was nearing its end, and as the upheaval in the shogunate
system intensified the feudal domains across Japan began increasing the amount of
gold and silver taxes levied on Nakai’s outlets. As part of an effort to mitigate such
payments, Mitsumoto closed the Minato, Soma, and Rikuzen-Ishinomaki branches,
and downsized the Nagoya, Uzen-Tendo, and Osaka branches, to concentrate on the
Sendai and Kyoto stores.
During the time of Mitsuyasu, the fifth generation Genzaemon, the Nakais
suffered a great deal of damage because the new Meiji government refused to
repay the loan the family provided to the Sendai clan. The Sendai store was
eventually closed around 1889–1890 (Meiji 22–23) so that only the Kyoto store to
remain with the sixth generation Genzaemon, Mitsutada. Although the family
opened the Kobe store in 1934 (Showa 9), all of the Nakais’ outlets eventually
closed by 1942 (Showa 17).
12
Ibid. p. 187.
13
Genzaburo-Naotake, the first son of Mitsutake Nakai, died young.
14
Ibid., Mizuhara, M. (1978), p. 189.
15
Ibid., p. 190.
Epoch-Making Nature of the Nakai Management Style 29
Epoch-Making Nature of the Nakai Management Style
The history of the Nakai family‘s fortune clearly shows that the first patriarch,
Mitsutake, was outstanding in terms of the innovative practices he introduced to
business management. His innovation was passed down to the second and third
generations, Mitsumasa and Mitsuhiro respectively.
What was the essence of the Nakais’ innovative practices that spanned the three
generations? Their speedy response to greater business opportunities brought about
by the nationwide development of a market economy, and the shift from peddling to
store-based businesses through the establishment of the new business model,
“sanbutsu mawashi” (goods circulation).
However, in order to successfully manage multiple stores simultaneously, the
Nakais had to raise a large amount of capital. They also had to devise a system to
efficiently oversee each store. In his study of the Nakai family’s approach to these
challenges, Takehisa Yamada explains as follows (based on Tsuneharu Egashira’s
research)16:
Omi merchants in the early modern period (...) expanded their peddling business to rural
areas in the Tohoku and Kanto regions, and set up stores in various places. To give an
example of a highly successful family, the Nakai Genzaemon household in Hino, Omi,
started a compound medicine business in the Kanto region in 1734 (Kyoho 19), shifted from
peddling to a store-based business, and expanded their geographical reach from Ou to
Kyushu. The family set up more than 20 stores nationwide, engaging in various types of
business, establishing joint ventures, managing stores as joint organizations with local
merchants, and setting up branches with extended families. At each of these stores, account-
ing books with double entry structure were used, and the business steadily expanded under
the joint ventures. In the Tohoku region, the Otawara store and Sendai store supervised
multiple branches in a form akin to a joint-stock company with local merchants.17
In order to raise the necessary funds for multiple new stores and also oversee each of
these stores, the Nakai family adopted the joint venture style, enlisting others to
contribute funds. Mizuhara classifies the Nakais’ joint ventures into the following
four types:
1. Cases in which the Nakai family served as the investor with managerial functions,
and other investors only contributed money and were equivalent to unlimited
liability, equity investors (Sendai, Fushimi, and Ushirono branches).
2. The Nakai family formally served as the investor without any managerial func-
tions, but in reality the Nakais were in control of accounting audits and business
decision-making. The day-to-day operations (manufacturing-related) were taken
care of either by a local investor with managerial functions or by an operator
16
Egashira, T. (1965). Omi shonin Nakaike no kenkyu (Studies of the Omi merchants, the Nakai
family). Tokyo: Yuzankaku, Inc.
17
Yamada, T. (2017). Shonin to shogyo soshiki (Merchants and commercial organizations). In
M. Hirota, T. Yamada, T. Kiyama, T. Nagahiro, & R. Fujioka (Eds.). Nihon shogyoshi: Shogyo
ryutsu no hatten purosesu wo toraeru (Japanese commercial history: Understanding the develop-
ment process of commerce and distribution) (p. 41). Tokyo: Yuhikaku Publishing Co., Ltd.
without an ownership stake. In addition, sometimes 2–3 additional investors

contributed funds without assuming managerial roles (Tendo, and Onomichi
branches).
3. A joint venture between one investor with managerial functions (local operator),
and the Nakai family in which the family did not assume any formal managerial
functions [...] but reserved the right to make decisions. (Otawara, Koizumi
[Otoawara store’s branch], Oshitate, Kitsuki, Hinosada [Sendai store’s branch],
Hinoman, and Hinogin branches).
4. A joint venture between the Nakai family and their manager. The Nakai family
served as the investor with managerial functions, and the manager would only
provide labor (Soma branch).
Mizuhara paid close attention to the first and second types in which the Nakais
“solicited investment from others who would only contribute money without assum-
ing managerial functions,” adding that “these resembled unlimited liability compa-
nies, but they are worthy of our closer attention as pioneering cases of Gomei
Kaisha, in which managers have unlimited liability and other investors have limited
liability.”18 By comparison, in the case of joint ventures created by big city mer-
chants such as Konoike and Mitsui, it was often family members who contributed
funds. Mizuhara notes: “Rather than collecting funds from others, a considerable
emphasis was put on the prevention of asset dispersal.”19
Thus, the Nakais gave birth to a new business model called “sanbutsu mawashi,”
pioneering new forms of joint capitalization through store openings across Japan.
This is yet another example of breakthrough innovation achieved during the Edo
period.
The Limits of the Nakai Family and Their Background
Despite the innovative business practices introduced by the three first generations of
Nakai Genzaemon, the Nakai family was at the mercy of the political turbulence
during the Edo-Meiji Restoration period and failed to grow after the Meiji era.
Mizuhara explains:
One reason the Nakai family, unlike the Mitsui family, failed to make great strides after the
Meiji period , might be due to their continuing relationship with the Sendai clan, despite the
family precepts against joining forces with feudal lords, a relationship that led to significant
losses. But more importantly, the Nakais had allowed family assets to be divided among
heirs during the transfer of power from the first to the second generation. Such dispersal of
family assets had always been forbidden in the Mitsuis, Konoikes, and other prominent
merchant families. The Nakais also suffered from a lack of human capital.20
18
Op. cit., Mizuhara, M. (1978), pp. 200–201.
19
Ibid. p. 202.
20
Ibid. p. 221.
The Limits of the Nakai Family and Their Background 31
As mentioned, the family’s relations with the Sendai clan dealt a heavy blow to the
Nakais. When the transition from the first generation to the second took place, what
was the form of “dispersion of property”? Mizuhara describes it thus:
In 1797 (Kansei 9), Mitsutake distributed his estate, assigning the main house and Sendai
and Soma branches (total capital of 31,000 ryo) to Mitsumasa; Kyoto and Onomichi
branches (total capital of 23,373 ryo) to his third son, Seijiemon Takenari; the Otawara
and Koizumi branches (total capital of about 10,000 ryo) to Mitsutomo, the son-in-law of
Riyo, the bereaved daughter of his eldest son, Genjiro, for Mitsutomo to carry on the name
Genzaburo. Furthermore, Ichizaemon, the husband of Mitsutake's third daughter Fumi and
adopted son of Mitsutake's older sister, was not given a branch, but was given gold (about
5,815 ryo), and thus the Seijiemon, Genzaburo, and Ichizaemon families became separate
branches.21
Such “dispersal of family assets” may have been inevitable for the family running
multiple stores nationwide through a “goods circulation” business. The Nakais, the
Konoikes, and the Mitsuis all adopted a joint-venture style of business, but this style
led to contrasting results: for the Nakais, it contributed to the dispersion of family
assets, while it worked for the Konoikes and the Mitsuis to prevent such an outcome.
parts of it.
21
Ibid. p. 188.
Discussion Point 1: Early Modern
or Pre-Modern?
Abstract This section addresses the question of whether the Edo period was
pre-modern or actually the start of Japan’s modern economic era. Its conclusion:
overall, the former is more accurate.
The “Novelties” of the Edo Period
In the first half of Part I, we focused on the Edo period and examined three cases:
(1) Zen’emon Konoike, who introduced a series of innovative practices on a national
scale; (2) Takatoshi Mitsui, who inaugurated retail innovation in response to new
business opportunities; and (3) Genzaemon Nakai, who seized business opportuni-
ties and was active in the national market despite being a local merchant. These
merchants were the driving force behind significant economic growth, one of the
hallmarks of the Edo period (especially the seventeenth century).
Their innovative activities were made possible by the “novelties” of the Edo
period, marked especially by the development of a market economy. Among the
scholars who have focused on this point and made bold arguments is Matao
Miyamoto.
Matao Miyamoto’s “Edo Period = Early Modern” Theory
Miyamoto focuses on the “novelties” of the Edo period and views Edo as belonging
to the early modern period.1 This is an influential argument that calls for a funda-
mental shift in the conventional view of the Edo period as a feudalistic and pre-
modern period, distinct from the modern era.
Miyamoto raises the following six points as the basis for his “Edo Period = Early
Modern” theory:
1
The following summary of the Early Modern Theory is from op. cit., Miyamoto, M. (2007),
pp. 1–5.
© Kreab K.K. 2023 33

34 Discussion Point 1: Early Modern or Pre-Modern?
1. The authoritative power of archaic forces such as the imperial court, aristocrats,
and temples and shrines had decisively receded. This meant the collapse of the
long-lasting, Ritsuryo system of administration and the manor system, as well as
the decline of religious power.
2. Widening geographical reach of economic activities: The establishment of intra-
and inter-fief markets facilitated the formation of a Japan-wide “national econ-
omy” thriving locally and nationally.
3. Major transformation of the environment such as improvements in civil engi-
neering and irrigation technology, as well as the introduction of new rice varieties
encouraging farmers to permanently settle in fixed areas while commercial and
industrial workers settled in cities, contributing to the growth of urban areas.
4. The class system of “samurais, farmers, artisans, and merchants” encouraged the
division of labor. This, in turn, led to the reduction of subsistence-farming and the
growth of commodity transactions and monetary economy.
5. Japan’s isolationist policy reflected its desire to minimize the influence of China
and of the West. It enabled Japan to remain basically free from the Sino-centric
“Hua–Yi” [“China or barbarians” perspective] order that had existed since
ancient times, and also from the growing encroachment into Asia of European
powers that had intensified since the mid-sixteenth century.
6. The standardization of a national currency, virtually for the first time in Japanese
history. The Edo period also saw the standardization of weights and measures, as
well as the development of new transportation methods.
The above is an overview of Miyamoto’s “Edo Period = Early Modern” theory. The
overall argument is solid, and his positive evaluation of the “samurai, farmer, artisan,
and merchant” system and of Japan’s isolationist policy is quite refreshing.
Prerequisites for Japanese Economy’s Early Takeoff
Nevertheless, I consider the Edo period to be pre-modern, and not belonging to the
modern era, due to the existence of the class system of “samurai, farmers, artisans,
and merchants.” The presence or absence of a class system is a decisive benchmark
distinguishing pre-modern from modern. Nevertheless, Japan in the Edo period
undeniably featured “novelties” that were distinct from the conventional feudal
period. Thus, the Edo period was a time when feudalism and the market economy
had come to coexist.
In the Introduction, the first of the three questions pertaining to Japanese business
history was: “What enabled Japan’s economy to take off so early on a growth path?”
I attribute the early takeoff to the presence of a feudal society featuring “novelties,”
that served as an important prerequisite.
Prerequisites for Japanese Economy’s Early Takeoff 35
parts of it.
Overview 2: From Port Opening to Post
Russo-Japanese War Period
Abstract This section surveys the revolutionary consequences of Japan’s opening

to the world from the mid-nineteenth century until early in the twentieth century, as
the country’s economy started on its capitalist path of development. It focuses on
four cases, featuring six innovative entrepreneurs who were active during this
period.
Japan’s Encounter with Global Capitalism
In the second half of Part I, we will focus on four cases, featuring six innovative
entrepreneurs active during the final days of the Edo period through the post Russo-
Japanese War period. Assessed individually, their innovations were “incremental” in
essence. However, the unique system resulting from the combination of their
innovations allowed Japan to industrialize in the wake of Europe and the United
States, becoming the first to accomplish this among late developer nations. Thus the
entrepreneurs to be discussed in the second half of Part I could also be viewed
collectively as breakthrough innovators of global historical significance.
Here we first turn back the clock to the time of the port opening at the end of the
Edo period, which took place about 15 years before the Meiji Restoration. From
there, we will reexamine the modernization and industrialization process in Japan.
Industrialization in a broad sense can begin through handicrafts that precede
mechanization, and the Edo period in Japan was no exception. In the
mid-nineteenth century, small-scale handicraft operations by individuals partnering
with merchants were fairly common, especially in the textile industry. In addition,
some factory-style handicraft operations appeared. Such operations, however, essen-
tially represented proto-industrialization, a concept proposed by Franklin Mendels
and Pierre Deyon based on their study of eighteenth century Flanders. This style of
handicraft operation can be labeled “pre-industrial industrialization”; or “Genki teki
© Kreab K.K. 2023 37

38 Overview 2: From Port Opening to Post Russo-Japanese War Period
Kogyo ka” in Japanese.1 In Japan, the start of full-scale industrialization came after
the country’s encounter with global capitalism through the port opening at the end of
the Edo period.
Following a series of events—the arrival of U.S. Commodore Matthew C. Perry
in 1853 (Kaei 6), the signing in 1854 (Ansei 1) of the Treaty of Amity and Friendship
between Japan and the U.S., and the 1858 Treaty of Amity and Commerce between
Japan and the U.S.—the Tokugawa Shogunate was forced to abandon its isolationist
policy and open Japan’s ports. This direct encounter with the world’s capitalist
powers, including the U.K., which was already establishing itself as the
“manufacturing house of the world,” overwhelmed Japan with the obvious disparity
in economic and military power between herself and them. Such a disparity was
evident in Japan’s being forced to accept the infringement of its judicial sovereignty
(i.e., acceptance of unilateral consular jurisdiction) and losing autonomy over tariffs
(i.e., acceptance of a consensus-based tariff system) in the treaties of amity and
commerce that Japan signed with others. Of these, the treaties of commerce “pegged
Japan to the world’s few countries that were practicing free trade at the time and
deprived Japan of the freedom to adopt protective tariffs as an instrument of its
industrial policy.”2 It was not until the signing in 1911 (Meiji 44) of the new
Japan-U.S. Commerce and Navigation Treaty did Japan regained most of its auton-
omy over tariffs.
The greatest political impact of the port openings at the end of the Edo period was
as a catalyst for the movement to promote the Emperor as leader of the nation and
repel foreign powers (Sonno-joi movement). This uprising ultimately led to the end
of the Tokugawa shogunate and the demise of feudal Japan. There are two opposing
theories on the Meiji Restoration of 1868. One claims that the Restoration was
comparable to the civil revolution in Europe that gave birth to the modern nation
state; the other maintains that it was only a form of an absolutist revolution leading to
the creation of a semi-feudal imperial system. I take the former view, that the Meiji
Restoration guaranteed various reforms indispensable for economic activity—free-
dom of contract, business, relocation, and occupation. It also brought about the land
tax reform of 1873 and the subsequent abolition of stipend payments for aristocrats
(Chichiroku Shobun) which helped establish modern land ownership.
1
For details of proto-industrialization, see Saito, O. (2013). Purotokogyoka no jidai: Seiyo to Nihon
no hikaku-shi (The era of protoindustrialization: The comparative history of Western Europe and
Japan). Tokyo: Iwanami Shoten Publishers.
2
Miwa, R. (1993). Gaisetsu Nihon keizaishi: Kingendai (An outline of Japanese modern economic
history) (p. 23). Tokyo: University of Tokyo Press.
Industrial Revolution in Japan 39
Accumulation of Capital and Labor
The port openings at the end of the Edo period had a profound economic impact on
Japan, accelerating what the economists call primitive accumulation, the build-up of
two essential components of capitalism: capitals and wage labor. After the Meiji
Restoration, this primitive accumulation continued despite turmoil triggered by
inflation and deflation under Shigenobu Okuma and Masayoshi Matsukata, succes-
sive secretaries of finance. Accumulation reached its final phase when the worsening
of economic disparity among farmers led to the dissolution of the peasantry. Okuma
and Matsukata were appointed to the post of Finance Minister in 1873 and 1881,
respectively. Inflation became a problem under Okuma, while deflation character-
ized Matsukata’s term. The 1882 establishment of the Bank of Japan was a symbol-
ized the completion of primitive capital accumulation.
Around 1880, as primitive accumulation was entering its final phase, a series of
major corporations were established in the form of joint-stock companies. Tokio
Marine Insurance was established in 1879, Nippon Railway in 1881, and Osaka
Cotton Spinning in 1882. As the success of these pioneering corporations boosted
confidence in the joint-stock company system, Japan saw an entrepreneurial boom
during a 4-year period (1886–1889), with newly emerging companies dealing in
insurance, railroad, textile spinning, and others areas, all riding the wave. Although
this boom was halted by the Depression of 1890, there is no doubt that industrial-
ization had clearly begun to take off in Japan.
Industrial Revolution in Japan
The Depression of 1890 that followed the entrepreneurial boom meant that capitalist
production had begun in earnest in Japan. If an industrial revolution is synonymous
with the establishment of capitalism in a given nation, then Japan’s own industrial
revolution started in the 1880s, just over a century after Britain.
When a late developer like Japan experiences its own industrial revolution, it can
access state-of-the-art technologies already developed in industrialized nations, but it
must also fight pressure from earlier developers to import their products while its
own industrialization is still underway. Although the cheap labor costs of a late
developer mean that labor-intensive, light industries can remain relatively resistant
to import pressures, that’s not the case for capital-intensive heavy industries face
substantial pressure. Therefore, to complete an industrial revolution to be completed
in a late developer, must establish machine-based production in light industries, such
as the textile industry. In addition, it should either: transform light industry into an
export industry to guarantee stable imports of heavy machinery: or develop its own
domestic production of heavy industry.
In terms of machine-based light industry, Osaka Cotton Spinning’s opening of a
large factory equipped with 10,500 spindles in 1883 was a milestone for Japan. In
40 Overview 2: From Port Opening to Post Russo-Japanese War Period
resisting import pressure, it was important that cotton yarn exports surpassed imports
in 1897, and that raw silk exports surged during 1900–1905. And as for development
of heavy industry, the blast furnaces at the government-run Yawata Iron & Steel Co.,
Ltd. became fully operational in 1904, and by the end of that decade, Japan became
self-sufficient in the production of ships and weapons.
Thus, Japan’s industrial revolution was completed by the mid-to-late-1900s. In
the process, Japan experienced two wars: the Sino-Japanese War of 1894–1895 and
the Russo-Japanese War of 1904–1905. Following these wars, the scale of Japan’s
finances grew drastically, with funds distributed to many sectors: (1) As part of the
“Post-Russo-Japanese War Management,” laws were enacted for arms expansion,
including the Navigation Encouragement Law and the Shipbuilding Encouragement
Law (both in 1896); (2) Establishment of a state-run ironworks (promulgation of the
Ironworks Governmental Regulations in 1896, with Yawata chosen as its location in
1897); (3) Establishment of special banks (1897 for Nippon Kangyo Bank,
1898–1900 for Prefectural Agricultural and Industrial Bank, 1900 for Hokkaido
Takushoku Bank, and 1902 for the Industrial Bank of Japan); (4) Implementation of
policies regarding the expansion of telegraph and telephone operations; (5) Also as
part of the “Post-Russo-Japanese War Management,” expansion of armaments,
nationalization of railroads, and establishment of the South Manchurian Railway
(all in 1906), were carried out; (6) Measures to expand state-owned steel mills and
telegraph and telephone operations were introduced. During this period, the gold
standard was established in 1897, backed by the large reparations obtained from the
Qing Dynasty. In addition, overseas colony operations grew, through the occupation
of Taiwan in 1895 and of South Sakhalin in 1905, and through the annexation of
Korea in 1910.
Three Types of Businessmen
The many businessmen were active during Japan’s industrialization process can be
divided into three main types:
1. Salaried managers, such as Hikojiro Nakamigawa.
2. Owner-managers, represented by Yataro Iwasaki, Yanosuke Iwasaki, Zenjiro
Yasuda and Soichiro Asano.
3. Investor-managers, such as Eiichi Shibusawa.
In the second half of Part I, we examine the activities of these businessmen
individually and evaluate their performance from the standpoint of innovation.
Three Types of Businessmen 41
parts of it.
Case 4 Hikojiro Nakamigawa: Zaibatsu
Reform by Salaried Managers
Abstract This chapter introduces Hikojiro Nakamigawa, a salaried manager who

became director of the Mitsui Bank in the Meiji period engaging in Zaibatsu reform,
including modernization, streamlining, and recovery of non-performing loans.
Characteristics of Japanese Zaibatsu
The first case study is of Hikojiro Nakamigawa1 who made his mark as a salaried
manager. A salaried manager is a person who has been promoted to a top manage-
ment post through specialized knowledge acquired at work or at higher academic
institutions. They are a different breed of businessperson from owner-managers who
arrived at the top through ownership of a company’s assets.
Notably, prior to World War II, zaibatsu-affiliated firms in Japan had far more
salaried managers than did non-zaibatsu-affiliated firms. Hidemasa Morikawa, who
compiled a detailed list of “Salaried managers in 28 of the 75 largest companies” as
of 1905, concluded that “salaried managers were more prevalent in large zaibatsu-
affiliated companies.”2
Considering that zaibatsu are family businesses, it may be surprising that salaried
managers have made significant inroads in such companies, but the role of such
managers is an important finding of Japanese business history researchers.
Japanese business historians have been particularly successful in their analysis of
the zaibatsu. Historian Hiroaki Yamazaki defines zaibatsu as a diversified business
form headed by a family and possessing dominant companies in multiple sectors of a
1
For details of Hikojiro Nakakamikawa in Mitsui Bank, see Kasuya, M. (2002). Gosho no Meiji:
Mitsuike no kagyo saihen katei no bunseki (Meiji of wealthy merchants: Analysis of the process of
Mitsui family’s business reorganization). Nagoya: Nagoya University Press.
2
See Morikawa, H. (1981). Nihon keieishi (Japanese Business History) (pp. 77–81). Tokyo: Nikkei
Publishing Inc.
© Kreab K.K. 2023 43

44 Case 4 Hikojiro Nakamigawa: Zaibatsu Reform by Salaried Managers
core industry.3 Although zaibatsu are also found in other countries, Japanese
researchers have identified some unique features of those in Japan:4
1. Zaibatsu were created through reforms that transformed them into modern busi-
ness entities. If they had remained political merchants closely aligned with the
powers of the time, Mitsui (effectively commencing operations in 1673) and
Mitsubishi (effectively commencing operations in 1873) would been unable to
sustain long-term growth. The crisis that engulfed the Mitsubishi shipping com-
pany, which lost government support due to the political upheaval of 1881, and
the financial difficulties of the Mitsui Bank in the early 1890s, caused by
increasing in bad loans to politicians and others, clearly demonstrated the limits
of political collusion. Mitsubishi overcame this crisis through a diversification
strategy (withdrawal from the shipping business and entry into shipbuilding,
banking, mining, warehousing, and real estate businesses) under Yanosuke
Iwasaki, the second head of Mitsubishi. Similarly, Mitsui Bank emerged from
crisis through a series of reforms (such as liquidation of non-performing loans,
fostering of diverse industries through investments and loans, and hiring many
salaried managers) that were promoted by Hikojiro Nakamigawa, who was
appointed as the bank’s director in 1891. Through these reforms, Mitsui and
Mitsubishi transformed themselves from old-fashioned political merchants to
modern business entities, setting themselves up for long-term growth.
2. Zaibatsu showed “a strong inclination to industrialization,” 5 and “played a
leadership role (i.e., risk takers’ role) in many industries, except in a few cases
such as cotton spinning, electric power generation, and their related industries.”6
Hikojiro Nakamigawa, who rose to the top at the Mitsui Zaibatsu, pursued the
industrialization path. When presented with greater business opportunities in the
period before and after World War I, Mitsui Zaibatsu became a Konzern in
German by establishing holding companies, converting directly-owned compa-
nies into joint stock companies, and forming a network of subsidiaries.7
3
According to a speech made by Hiroaki Yamasaki in the 15th Business History Society of Japan in
1979. See Morikawa, H. & Yuzawa, T. (1980). Dai-jugokai taikai toitsurondai “taishoki ni okeru
chukibo zaibatsu no seicho to genkai” togihokoku (Integrated subject of the 15th annual meeting:
Discussion report ‘The growth and limit of mid-level zaibatsu in the Taisho period’). Japan
Business History Review, 15(1).
4
Examples of business history research on leading Japanese zaibatsu include Yasuoka, S. (1970).
Zaibatsu keisei-shi no kenyu (Studies of the history of zaibatsu formation). Kyoto: Minervashobo;
Morikawa, H. (1980). Zaibatsu no keieishi-teki kenkyu (Business history studies of zaibatsu).
Tokyo: Toyo Keizai Inc.; The Center for Business and Industrial Research, Hosei University, J.
Hashimoto, & Takeda H. (1992), Nihon keizai no hatten to kigyoshudan (The development of the
Japanese economy and corporate groups). Tokyo: University of Tokyo Press.
5
Op. cit., Morikawa, H. (1980), p. 299.
6
Kikkawa, T. (1996). Nihon no kigyo shudan: zaibatsu tono renzoku to danzetsu (Japanese
corporate groups: The continuity and discontinuity with zaibatsu) (p. 230). Tokyo: Yuhikaku
7
“Konzern” refers to a form of monopolistic organization trying to control different industry fields
with one integrated fund formed by a holding company owning the stock of two or more enterprises.
Characteristics of Japanese Zaibatsu 45
Differing patterns of development can be seen in the zaibatsu shift to industrial

Konzern-style entities: (a) Yasuda and Nomura, the “financial zaibatsu,” were
reluctant to diversify their business; (b) By 1908, Mitsui, Mitsubishi, and
Sumitomo, which had already diversified to become “general zaibatsu,” entered
the heavy and chemical industries, the few major industries still untouched by
zaibatsu; (c) The so-called “mining zaibatsu” of Furukawa and Kuhara, the
“manufacturing zaibatsu” of Asano, Kawasaki-Matsukata, and the “logistics
zaibatsu” of Okura and Suzuki, that had thus far focused on specific industries,
actively promoted diversification and managed to form a broad conglomerate.8
Of these patterns, most of the diversification drive mentioned in (c) failed during
the economic recession after the 1920 depression. Still, it is clear that the Japanese
zaibatsu that had become concerns possessed a “strong inclination for
industrialization.”
3. In Japan, zaibatsu-affiliated companies had far more salaried managers than did
non-zaibatsu-affiliated companies. At Mitsui, Hikojiro Nakamigawa was one of
these managers. A graduate of Keio Gijuku (predecessor of Keio University), he
brought in many others from Keio to join the Mitsui family businesses. These
Keio graduates who joined Mitsui became some of the leading salaried managers
in Japan prior to World War II. The same was true of Mitsubishi, but notable at
Mitsubishi was the fact that its owner-managers, Yataro and Yanosuke Iwasaki,
actively hired salaried managers.
The reason for the relative prominence of salaried managers in zaibatsu-affiliated
firms was that “in Japanese zaibatsu, restraints on [family] ownership were doubly
effective—first in the relationship between the owner family and [zaibatsu’s] central
company, and second in the relationship between the central company and its direct
affiliates.” 9 In the former, the fact that family ownership was under a joint owner-
ship system that served as a restraint. As we saw earlier in Case 2, joint ownership’s
nature “did not permit the division of family property, and the freedom to dispose of
assets, which was an essential component of private ownership, was nonexistent.”10
Thus, the system of joint ownership functioned to limit ownership by the members
and relatives of the founding family. In the latter, central company and affiliates, the
central company served as a stable shareholder of its affiliates. The ratio of salaried
managers on the boards of directors of all major Japanese companies, including
those not affiliated with zaibatsu, steadily rose by the 1930s.
8
See Kikkawa, T. (2016). Sangyo keieishi shiriizu 8: Zaibatsu to kigyo gurupu (Industrial business
history series 8: Zaibatsu and corporate groups) (pp. 35–39).Tokyo: Japan Business History
Institute.
9
Ibid., Kikkawa, T. (1996), p. 231.
10
Takeda, H. (1992). Takakuteki jigyobumon no teichaku to kontserun soshiki no seibi (The
settlement of diversified business sectors and the development of Konzern organizations). In
op. cit., The Center for Business and Industrial Research, Hosei University, J. Hashimoto, and
Takeda, H. (Eds.) (1992) The development of the Japanese economy and corporate groups. (p. 78).
Through a series of business history studies, it became clear that Japanese

zaibatsu had the following characteristics: (a) They shifted away from political
power, then modernized and streamlined their management; (b) They became
leaders in many industries with a strong drive towards industrialization; and
(c) They actively recruited and appointed salaried managers. The third point was
the most noteworthy of these, showing that while the zaibatsu bore the characteris-
tics of a family business, they also eagerly appointed salaried managers. The salaried
managers who were given an active role within zaibatsu played a central role in
business modernization and industrialization. These findings contain useful impli-
cations for late developer nations in designing their own industrialization, and
should be appreciated as an important international contribution by Japan’s business
history researchers.
The three characteristics mentioned above are highly relevant to the reforms at
Mitsui carried out by Hikojiro Nakamigawa. Nakamigawa can be seen as a person-
ification of the move from political power to industrialization and use of salaried
managers. We will briefly review Nakamigawa’s biography leading up to his joining
Mitsui and then analyze his record in the order of (a), (c), and (b).
Brief Biography of Hikojiro Nakamigawa
Hikojiro Nakamigawa was born in 1854 (Ansei 1) in what has become today’s
Nakatsu City, Oita Prefecture. Hikojiro’s mother, En, was the daughter of
Hyakusuke Fukuzawa, an officer of the Nakatsu Domain, and also the sister of
Keio University founder Yukichi Fukuzawa. In short, Hikojiro Nakamigawa was a
nephew of Yukichi Fukuzawa.
Admiring Fukuzawa, Nakamigawa went to Tokyo and studied at Keio Gijuku in
Tokyo. He also studied in Britain from 1874 (Meiji 7) to 1877. Following his return,
Nakamigawa worked for the Ministry of Industry and the Ministry of Foreign
Affairs of the Meiji government under Prime Minister Kaoru Inoue. Afterward,
Nakamigawa served as president of Jiji Shimpo and of Sanyo Railway (SR). Jiji
Shimpo, a daily newspaper founded by Yukichi Fukuzawa, was one of Japan’s “Top
5 Newspapers” before World War II, but stopped publication in 1936 (Showa 11).
SR, the railroad company that built the Sanyo Main Line among others, is still
operated by West Japan Railway Company (JR West) today. Prior to the national-
ization of the railroads in 1906 (Meiji 39), the rail lines were privately owned and
privately operated.
Nakamigawa stepped down as president of SR in 1891 and became a director of
Mitsui Bank on the recommendation of Kaoru Inoue. Under the leadership of
Rizaemon Minomura, Mitsui survived the turmoil at the end of the Tokugawa
Shogunate and the early days of the Meiji Restoration, but after Minomura’s death
in 1877, lack of leadership began to strain the company. The accumulation of bad
debts resulting from Minomura’s pro-government policies pushed Mitsui Bank into
Recovery of Non-performing Loans 47
a crisis, symbolized by a bank run at the Kyoto branch in 1891. To overcome the
crisis, Mitsui Bank chose to hire a leader from the outside.
Describing Nakamigawa’s entry into Mitsui, historian Makoto Kasuya highlights
the important role of Takashi Masuda, the founder of Mitsui & Co. The decision to
hire Nakamigawa reflected the intention of the Mitsui family’s wish to display
leadership to the employees. 11 As Kasuya notes, “When the family assumed
leadership over employees, it needed a competent salaried manager who could be
entrusted by the family to competently carry out management duties. This is where
the family and Inoue’s expectations for Nakamigawa aligned.” 12
In 1892, a year after joining Mitsui Bank, Nakamigawa became its deputy general
manager and undertook a series of managerial reforms, including collecting bad
debts, appointing salaried managers, and promoting industrialization. However,
Nakamigawa gradually became isolated within Mitsui as the industrialization
division continued to generated losses due to the recession that followed the
Sino-Japanese War (1894–1895), among other causes. Nakamigawa became ill
and died in 1901, before reaching the age of 50.
Recovery of Non-performing Loans
Beyond Nakamigawa’s management modernization and streamlining (point 1), a

noteworthy move was clearing bad debts accrued by Mitsui Bank that stemmed from
its pro-government policy. One well-known example was pursuing the debt owed by
the Higashi Honganji temple.
According to Makoto Kasuya’s work titled “Gosho no Meiji (Meiji of wealthy
merchants),” as of June 1891, Mitsui Bank’s outstanding loans to the Higashi
Hongwanji temple totaled 990,300 yen, second only to the largest borrower Miike
Coal Mine (outstanding loans: 1,076,749 yen). Loans to Higashi Honganji temple
were originally initiated through the mediation of Masayoshi Matsukata (see ibid.,
pp. 52–53).
Mitsui Bank managed to collect the non-performing loan after Nakamigawa
joined the bank. According to Kasuya in “Gosho no Meiji” that, “Although there
is no historical record of the repayment of the second largest loan to Higashi
Honganji, it is safe to assume that the full amount was collected since the complete
repayment was expected as of April 1892 and there was no evidence of write-offs or
collateral appropriation. Because ‘real [market] value’ as of June 1891 was only
about half, it means that thanks to Nakamigawa’s efforts, net assets increased and
liquidity improved.”13
11
Op. cit., Kasuya, M. (2002), pp. 57–64.
12
Ibid., p. 64.
13
According to op. cit., Kasuya, M. (2002):The disposal of non-performing loans for Michihiro
Nakamura and Hisashige Tanaka was discussed as “an example of the increment of the assets’
But Kasuya also states in “Gosho no Meiji” that “Nakamigawa’s clean-up of

non-performing loans, like those of Higashi Honganji, cannot be entirely attributed
to the series of negotiations that took place after he joined the bank. Various forms of
debt clearance efforts were made before Nakamigawa’s arrival, such as collateral
appropriations, the selling of the 33rd National Bank even before any substantial
surge of ‘real [market] value’, and the complete write-off of ‘loans in arrears.’”14
Thus, Kasuya cautions against overestimating the loan recovery effort by
Nakamigawa.
Appointment of Salaried Managers
Nakamigawa aggressively hired and appointed salaried managers as described

above. Hidemasa Morikawa points out that Mitsui & Co., controlled by Mitsui
family members at the time, actively recruited university graduates even before
Nakamigawa’s arrival. 15 However, he also points out:
Mitsui Bank, which was the only business directly run by the Mitsui, was slow to hire
university graduates. Hikojiro Nakamigawa, who became a director of the Bank in Meiji
24 [1891] was the first to hire many Keio Gijuku graduates from a variety of professional
fields as he promoted bank reform and industrialization from Meiji 25 onward. 16
Table 1 lists the Keio Gijuku graduates whom Nakamigawa recruited to join Mitsui
Bank.17 Seishi Nakamura, who compiled the list, noted of Nakamigawa that “he
himself was a pioneering salaried manager of zaibatsu, and the highly educated
talents recruited during his leadership later became key personnel not only within
Mitsui but also in respective fields of industry.” Nakamura continued:
“Nakamigawa’s role in the development of Mitsui was significant, particularly in
breaking away from its pro-government inclination and in the modernization of
human resources.” 18 In the Mitsui zaibatsu, where salaried managers were promoted
in large numbers, what was the relationship between the Mitsui family and these
managers? Hidemasa Morikawa suggests, “While the official view was that the
bosses of the Mitsui family . . . should assume top management posts and lead the
‘practical value’ made by Nakakamikawa.” (see p. 65). Note that Michihiro Nakamura was the
fourth and Hisashige Tanaka was the tenth largest recipient of loans according to the records for
outstanding loans at the main head office of Mitsui Bank as of June in 1891 (see ibid., p. 52).
14
As of June 1891, the 33rd National Bank was the third largest recipient of loans according to the
records for outstanding loans from the main head office of Mitsui Bank (see: op. cit., Kasuya, M.
(2002), p. 52).
15
16
Ibid., p. 40.
17
Nakamura, S. (1999). Nakamigawa Hikojiro no Mitsui kaikaku (Hikojiro Nakamigawa’s reform
of Mitsui). In M. Udagawa, & S. Nakamura (Eds.), Materiaru Nihon keieishi (Material Japanese
business history) (p. 27). Tokyo: Yuhikaku Publishing Co., Ltd.
18
Ibid., p. 26.
Appointment of Salaried Managers 49
Table 1 Keio Gijuku graduates whom Hikojiro Nakamigawa recruited to join Mitsui Bank
Occupation Year
before joining joining
Name Alma mater Mitsui Bank the bank Post-Mitsui career (position held)
Koji Keio Gijuku Teacher and 1892 Tomioka Silk Mill (Director)
Tsuda Newspaper
reporter
Tei Keio Gijuku Newspaper 1892 Kyodo Fire Insurance (Managing
Murakami reporter, Sanyo Director)
Railway
Raita Keio Gijuku Member of the 1892 Dainippon Sugar Co. (President)
Fujiyama prefectural
assembly
Ichizo Keio Gijuku Fresh graduate 1892 Hankyu Corporation (President),
Kobayashi Toho (President), Minister of
Commerce and Industry
Toyoji Keio Gijuku NYK Line 1893 Fuji Gas Boseki (President)
Wada
Sanji Keio Gijuku Advertising 1893 Kanegafuchi Spinning (President)
Muto agency, News-
paper reporter
Shogoro Keio Gijuku Diplomat, 1894 Mitsui Bank (Director), Toshin
Hatano Newspaper Warehouse (Director)
reporter
Umeshiro Keio Gijuku Newspaper 1894 Oji Paper (Senior Managing
Suzuki reporter Director)
Sotaro Keio Gijuku Newspaper 1894 Mitsui Bank
Yanagi reporter
Seki Yada Keio Gijuku Newspaper 1895 Mitsui Bank (Auditor)
reporter, Sanyo
Railway
Shigeaki Keio Gijuku Newspaper 1895 Mitsui Bank, Mitsui Gomei, Gov-
Ikeda and Harvard reporter ernor of Bank of Japan, Minister of
University Finance
Ginjiro Keio Gijuku Newspaper 1895 Mitsui & Co., Oji Paper (Presi-
Fujiwara reporter dent), Minister of Commerce and
Industry
Satoshi Keio Gijuku Teacher and 1896 Fujimoto Bill Broker Bank,
Hiraga government Hankyu Corporation (President)
official
Osuke Keio Gijuku Store manager 1896 Mitsukoshi (Executive Director)
Hibi
Mitsui zaibatsu, no one adhered to it. On the other hand, salaried managers were not
entirely entrusted with top-level managerial duties, with family members often
intervening in the decision-making process.” 19
19
Op. cit., Morikawa, H. (1981), pp. 135–136.
Makoto Kasuya emphasizes the influence of the Mitsui family in appointing

Nakamigawa as well as the constraints placed by the family on Nakamigawa’s
reforms were substantially constrained by the family. 20 However, given that the
Mitsui family had no choice but to rely on Nakamigawa, a salaried manager, to
pursue managerial reforms at Mitsui Bank, and that Nakamigawa’s reforms
contained innovative elements as highlighted above, I believe his reforms were of
historical importance.
The appointment of salaried managers similar to those discussed here was also
evident at Mitsubishi, where the two owner-managers, Yataro Iwasaki and
Yanosuke Iwasaki, supported their recruitment. Mitsubishi managers will be
discussed in Case 5.
Industrialization Effort and Its End
Finally, let us look at how Hikojiro Nakamigawa worked to promote industrializa-

tion. Historian Shigeaki Yasuoka explains:
Hikojiro had long held the opinion that the company should contribute to the industrializa-
tion of Japan. When the four partnership companies were established in June of Meiji
26 (1893),21 the Mitsui Motokata-Mitsui Family Association was formed to oversee these
companies. The land that had been owned by each company for non-commercial purposes
use was placed under the control of a newly established Estate Department, and the factories
owned by each company were placed under the control of a newly established Industrial
Department, with Mitsui Motokata managing both departments. Hikojiro then devoted his
energies to the development of the Industrial Department.22
The newly established Industrial Department included the Maebashi Spinning Mill,
Oshima Silk Mill, Shinmachi Silk Spinning Mill, Mie Silk Mill, Nagoya Silk Mill,
and Tomioka Silk Mill, among others. 23 According to Yasuoka, “In addition,
Kanegafuchi Spinning Co., Ltd. had temporarily fallen into financial difficulties
during the depression of Meiji 23 [1890]. Nakamigawa became its president and
shored up business, and he also sent Raita Fujiyama to Oji Paper Corporation, which
was short of funds for expansion, to effectively control the company. In addition,
through the liquidation of non-performing loans, he sought to improve and expand
the Shibaura Seisakusho (Shibaura Works), which the company had acquired from
Hisashige Tanaka.”24
20
Op. cit., Kasuya, M. (2002), pp. 73–75.
21
“Four Gomei Kaisha” refers to Mitsui companies in the bank, trading, mining, and drapery
businesses.
22
Yasuoka, S. (1978). Nakamigawa Hikojiro: Gyo nakaba ni taoreta risoshugi-teki kigyoka
(Hikojiro Nakamigawa: Idealistic entrepreneur who collapsed mid-pursuit). In S. Yasuoka,
Y. Nagasawa, T. Asano, Y. Mishima, & M. Miyamoto (Eds.), Nihon no kigyoka 1: Meiji hen
(Japanese entrepreneurs 1: The Meiji edition) (p. 27). Tokyo: Yuhikaku Publishing Co., Ltd.
23
Ibid., p. 27.
24
Ibid., pp. 27–28.
Industrialization Effort and Its End 51
Thus, after joining Mitsui, Nakamigawa aggressively promoted the industrializa-

tion of Japan. The effort faced setbacks, however. Owing partly to the recession that
followed the Sino-Japanese War, the industrialization drive led to a short-term
deterioration in Mitsui’s business performance and increased internal criticism of
Nakamigawa’s reforms. This downturn also apparently contributed to
Nakamigawa’s death in 1901 at age 47, before he witnessed the fruits of his reforms.
Shigeaki Yasuoka calls Nakamigawa “an idealistic entrepreneur who passed away
while working toward his goals.” 25
parts of it.
25
Ibid., p. 1.
Case 5 Yataro Iwasaki and Yanosuke
Iwasaki: Formation of Zaibatsu by Owner
Managers
Abstract This chapter introduces Yataro Iwasaki, the founder of Mitsubishi and a
representative example of an owner-manager who promoted industrialization in the
Meiji period.
Brief Biography of Yataro Iwasaki
If Hikojiro Nakamigawa of Mitsui is a typical example of a salaried manager, Yataro

Iwasaki, the founder of Mitsubishi, can be called a representative example of an
owner-manager. A brief biography of Yataro follows.
Yataro Iwasaki was born in 1835 (Tempo 5) in Aki County, Tosa Province
(today’s Aki City, Kochi Prefecture), as the eldest son of Yajiro Iwasaki, a samurai
of low status. Yataro served as a low-ranking official of the Tosa Domain, traveling
on business to Nagasaki and taking part in the feudal lord’s visits to Edo, but his
failure to adhere to rules led to dismissal from both duties. However, Yataro
gradually began to demonstrate his business acumen, becoming a prominent figure
in the Tosa Domain. His turnaround is attributed to an assignment with the Nagasaki
branch of the Tosa Commerce Association (Nagasaki Tosa Shokai), part of
Kaiseikan, an organization of the Tosa Domain. Business historian Ryoichi Miwa
states:
Yataro’s fortune changed for the better when he was assigned to the Nagasaki Tosa Shokai in
Keio 3 (1867). Tosa Shokai’s business was to sell Tosa’s regional products and purchase
arms and ships, and Yataro, as chief of the Tosa Shokai, met with foreign merchants and
gained valuable experience in business transactions.1
Thereafter,
1
Miwa, R. (1979). Mitsubishi no hassei to Iwasaki Yanosuke: Mitsubishijokisengaisha (The
formation of Mitsubishi and Yanosuke Iwasaki: Mitsubishi Steamship Company). In
K. Nakagawa, H. Morikawa, & T. Yui, (Eds.), Kindai Nihon keieishi no kiso chishiki zohoban
(The enlarged edition of basic knowledge on modern Japanese business history) (p. 30). Tokyo:
© Kreab K.K. 2023 53

54 Case 5 Yataro Iwasaki and Yanosuke Iwasaki: Formation of Zaibatsu by. . .
Yataro moved from Nagasaki to the Osaka branch of Tosa Shokai, where he was promoted
to junior advisor for the Tosa Domain after he skillfully managed the financing and purchase
of steamers. Due to the Meiji government’s prohibition on feudal clan-based businesses and
also to the austerity policies of the Tosa Domain, plans were made to spin off the Osaka Tosa
Shokai and to reorganize it as the Tosa Kaisei Shosha, and in Meiji 3 [1870], it was
authorized by the trade authorities as the Tsukumo Shokai. 2
The Tsukumo Shokai became completely independent of Tosa Domain with

the abolition of the feudal domain system in 1871 and changed its name to the
Mitsukawa Shokai in 1872. Yataro reorganized the Mitsukawa Shokai into the
Mitsubishi Shokai in 1873, becoming president.
Business historian Yasuaki Nagasawa describes the activities of Mitsubishi
Shokai:
Mitsubishi Shokai was a diversified company engaged in shipping, mining, coal mining,
camphor manufacturing, and silk spinning. Of these businesses, shipping was the most
successful. At the time, the Japanese government ordered Mitsui and other major merchants
to establish the Japan Post Steamship Company, with the aim of protecting coastal shipping
routes from foreign steamship companies. However, Japan Post Steamship was inefficient
and poorly managed, and even lost out to Mitsubishi Shokai, only had a few steamers at the
time. So, the government’s plan was unlikely to succeed. In addition, the Japan Mail
Steamship Company was even involved in a scandal for its refusal to provide military
transport for the Japanese invasion of Taiwan in Meiji 7 [1874]. Mitsubishi Shokai,
however, boldly agreed to provide military transportation at the request of the government.
Consequently the government decided to make Mitsubishi Shokai a protected company and
issued the “First Order” in the following year, Meiji 8. The order granted Mitsubishi a total
of 31 steamers, including 13 government-owned vessels and 18 steamships owned by the
Japan Post Steamship Company, free of charge, as well as an annual subsidy of 250,000 yen
for operating expenses. Mitsubishi’s shipping division was renamed the Mitsubishi Mail
Steamship Company [MMSC] and became the largest monopolistic and privileged shipping
company in Japan.3
With the support of the government and led by Yataro Iwasaki, MMSC boldly
challenged the foreign steamship companies that dominated the shipping routes
around Japan at the time. First, the company pioneered the Shanghai route, chal-
lenging and triumphing over the U.S. Pacific Steamship Company. Furthermore,
Mitsubishi also triumphed over the British P&O (Peninsular and Oriental) Steam
Navigation Company on the Shanghai route and on the Tokyo-Osaka route.
However, Yataro’s reliance on government support, left the business on a shaky
foundation. Historian Yasuaki Nagasawa notes:
The so-called “political merchant” path of business, in which businesses closely cooperate
with the government, can provide a hefty source of income, but it is also very risky.
Mitsubishi, too, was unable to enjoy the benefits for long. They ended when the Political
Upheaval of Meiji 14 [1881] swept the government, and Shigenobu Okuma, who had been
Mitsubishi’s backer, was ousted from the government. The Satcho government [consisting
2
Ibid., p. 30.
3
Nagasawa, Y. (1978). Iwasaki Yanosuke: Mitsubishi kindaika wo ninatta nidaime (Yanosuke
Iwasaki: The second generation who modernized Mitsubishi). In op. cit., S. Yasuoka, Y. Nagasawa,
T. Asano, Y. Mishima, & M. Miyamoto, (Eds.). Japanese entrepreneurs 1: The Meiji edition p. 48).
Brief Biography of Yanosuke Iwasaki 55
largely of former samurais hailing from feudal domains of Satsuma and Choshu], saw that
behind Okuma were Yukichi Fukuzawa in literary circles and Yataro Iwasaki in business
fields; they considered the three men an alliance. Thus, in a dramatic turn of events, [the
government] began to exert pressure on Mitsubishi. 4
In 1882, the government turned against Mitsubishi, establishing Kyodo Unyu

Kaisha (KUK) as a rival to MMSC with the help of the Mitsuis and Eiichi
Shibusawa. Competition between KUK and MMSC was fierce, gradually exhausting
both companies and driving them near, and it was becoming likely that both would
collapse. In later years, Yataro Iwasaki and Eiichi Shibusawa were often considered
to be rivals,5 and this fierce competition between the two companies was behind such
a view. Due to tough competition, both MMSC and KUK faced a serious financial
crises. Yataro Iwasaki fell ill and died in 1885.
Brief Biography of Yanosuke Iwasaki
After Yataro Iwasaki’s death, his younger brother, Yanosuke, succeeded him as
president of MMSC. Yanosuke Iwasaki was born in 1851 (Kaei 4) in Aki County,
Tosa Province, as the second son of Yajiro Iwasaki—16 years after Yataro’s birth.
Yanosuke attended Chidokan, a school run by the Tosa Domain, and was taught
by Yasutsugu Shigeno at a private school before studying abroad in New York in
1872 (Meiji 5). The following year he returned to Japan and joined his elder brother
Yataro’s company, by then renamed Mitsubishi Shokai, becoming its vice president.
In 1885 Yanosuke became the second head of the Mitsubishis when his older brother
passed away.6
The historian Yasuaki Nagasawa provides an analysis of Yanosuke’s ascent as
the second president:
Being the second generation puts the person in a delicate position. The first generation can
freely run the business, and both failure and success are of their own making. By contrast,
the second generation may increase the inheritance, but is not allowed to shrink it. Business,
however, is fraught with risk, and ventures with great profit potential also carry great risk of
failure. On the other hand, if the company maintains only safe businesses, profits will be low
and the company will not be able to achieve significant growth; worse, the company may
decline. In short, a second-generation chief will oscillate between aggressive and passive
options when it comes to decision-making. Yanosuke must also have experienced this state
of mind, complicating any evaluation of his performance. If we emphasize the passive
aspect, Yanosuke was a defender, a man who ran the business inherited from Yataro on
4
Ibid., p. 49.
5
For example, Saburo Shiroyama depicted Eiichi Shibusawa in his novel, Shiroyama, S. (1972).
Yuki dodo (Magnificently with dignity). Shinchosha Publishing Co., Ltd. (First published in 1971
under the original title of Kanto [Cold light]), which adopted a similar viewpoint.
6
Following Nagasawa Yasuaki’s argument, I make a positive evaluation of Yanosuke Iwasaki’s
role in the diversified businesses of Mitsubishi from 1898 when Mitsubishi Limited Partnership
Company was established, to the mid-1900s. See op. cit., Nagasawa, Y. (1978)., pp. 74–75.
the track laid down by Yataro. If we emphasize the aggressive aspect, he was a fortifier who
developed his own course of business based on the foundation of Yataro’s legacy. Actually,
he seems to have had both aspects, and cannot be painted in a single color. When evaluating
Yanosuke’s activities, we must consider both of these aspects.7
As the “defender,” Yanosuke can evinced an ability to end the ruinous competition
between MMSC and KUK. There was a fear that if the competition produced a
quagmire sinking both companies, foreign steamship companies would step into the
vacuum and increase their presence around Japan’s coastal waters. Concerned about
such a prospect, the Japanese government decided to merge MMSC and KUK,
forming a new company. Yanosuke accepted this new policy and dissolved
MMSC in September 1886. In October of the following year, the new company
Nippon Yusen Kabushiki Kaisha (NYK Line) was established, taking over the
operations and assets of the two.
Yanosuke had to make the difficult decision to withdraw Mitsubishi from the
shipping business, a decision that might not have been possible if Yataro had been
alive. For Yataro, the shipping business was precious. However, thanks to the
decisions of Yanosuke, Yataro’s heir, Mitsubishi was able to overcome a major
crisis. In this sense, Yanosuke was a “defender.”
The dissolution of MMSC allowed Mitsubishi to make a fresh start outside of the
shipping transportation business and began to aggressively pursue a diversification
strategy. Yanosuke’s character as a “man who fortified the foundation” was fully
demonstrated from then on.
Mitsubishi’s entry into the shipbuilding industry was an important milestone in
the company’s full-fledged diversification of its business. In 1884, Mitsubishi leased
the government-run Nagasaki Shipyard. As historian Nagasawa explains: “At that
time, Kyodo Unyu and Mitsubishi were in the midst of fierce competition, and it was
strange for the government to lease the Nagasaki Shipyard to Mitsubishi, a compet-
itor company. While the circumstances surrounding this are unknown, one theory is
that the government was trying to weaken Mitsubishi by handing to Mitsubishi them,
the deficit-ridden Nagasaki Shipyard and Machinery Works [NSMW], thereby
indirectly helping Kyodo Unyu.”
Mitsubishi acquired ownership of the government-run NSMW in 1887 and
Yanosuke devoted himself to the restructuring of the shipyard. He invested in a
major facility expansion and appointed his trusted subordinate, Heigoro Shoda, as
manager of the Nagasaki Shipyard.
Under the leadership of Yanosuke, the NSMW was able to rebuild its business
and continued to grow. The construction in 1896 of the 6000-ton class ocean cruiser,
the Hitachimaru, was a symbolic event.
Mitsubishi’s Nagasaki Shipyard became the foundation of today’s Mitsubishi
Heavy Industries, with Mitsubishi Electric Corporation and Mitsubishi Motors
Industries born as spin-offs from the shipbuilding business. Yanosuke’s decision
7
Op. cit., Nagasawa, Y. (1978), p. 51.
Breaking Away from Political Powers 57
to withdraw from the shipping transport industry and enter the shipbuilding business
was the starting point for Mitsubishi group’s overall diversification.
Yanosuke’s diversification effort did not stop there. In the coal mining and metal
mining industries, he greatly expanded the scale of operations that had begun during
Yataro’s reign. Mitsubishi’s coal mining business had essentially begun with the
acquisition of the Takashima Coal Mine in 1881, and Yanosuke worked hard to
expand the mine’s operations. In 1889, he acquired the Shinnyu-Namazuta Coal
Mine and expanded into the Chikuho coal field. In the metal mining business,
Yanosuke worked to strengthen the management of the Yoshioka Mine that had
been shaky during Yataro’s time. In addition, Yanosuke also acquired and developed
metal mines throughout Japan, including the Osarizawa Mine, Makimine Mine,
Omodani Mine, Ikuno Mine, and Arakawa Mine.
A notable examples of Yanosuke’s Mitsubishi business diversification was his
foray into the real estate business, reportedly begun at the suggestion of Heigoro
Shoda who was sent on a business trip to London. This trip culminated in the
development of the “1-cho London” office complex in the Marunouchi district of
Tokyo—the beginning of today’s Mitsubishi Estate Co., Ltd.
Thus, Yanosuke Iwasaki, the second generation, played a leading role in the
diversification of the Mitsubishi zaibatsu’s businesses. His appellation as the “man
who fortified the foundation” is certainly fitting.
In 1893, Yanosuke dissolved Mitsubishi Company and reorganized it as
Mitsubishi Goshi Kaisha and handed over the presidency to Hisaya, Yataro’s eldest
son. After passing the reins to Hisaya, Yanosuke remained involved in Mitsubishi’s
management and, until his death in 1908, continued to assist his nephew in further
diversifying the company’s business.8
Breaking Away from Political Powers
In the discussion of Hikojiro Nakamigawa and Mitsui in Case 4, three requirements

are mentioned for zaibatsu formation: (1) to break away from political powers; (2) to
appoint salaried managers; and (3) to promote industrialization. These three require-
ments also apply to the establishment of the Mitsubishi zaibatsu.
First, it was significant that Yanosuke Iwasaki, who became the second head of
the company after the death of Yataro Iwasaki, transferred the business and assets of
Postal Steamship Mitsubishi Company, which had been growing rapidly with
government backing, to NYK and thereby withdrew from the marine transport
business. In this regard, Yasuaki Nagasawa writes:
8
Following Nagasawa Yasuaki’s argument, I make a positive evaluation of Yanosuke Iwasaki’s
role in the diversified businesses of Mitsubishi from 1898 when Mitsubishi Limited Partnership
Company was established, to the mid-1900s. See op. cit., Nagasawa, Y. (1978)., pp. 74–75.
When valuing the assets to be transferred, Mitsubishi had revalued its depreciated vessels
and other assets, so it had not lost any money. Moreover, many of the steamers transferred
were old vessels. NYK sold 16 underperforming vessels during the first seven years after its
establishment, necessitating a capital reduction from 11 million yen to 8.8 million yen. In
other words, Yanosuke succeeded in selling the shipping business at a higher price.
Furthermore, the government guaranteed an 8% annual dividend from NYK, whose largest
shareholder was the Iwasaki family. In the end, Yanosuke protected the Iwasaki family’s
assets while cleaning up its close ties with the government. Compared to Mitsui’s departure
from being a political merchant that required the disposal of bad debts and other significant
expenditures, Yanosuke’s actions were comparable to ignoring flowers and just taking the
fruit. 9
By withdrawing from the shipping business, Mitsubishi was able to break away from
depending on political powers. This was an essential path for Mitsubishi’s rebirth as
a modern zaibatsu.
Appointment of Salaried Managers
Mitsubishi also aggressively recruited and actively hired salaried managers. It was
notable that Yataro and Yanosuke, the owner-managers, took a proactive stance in
their hiring.
Table 1, prepared by historian Hidemasa Morikawa, covers the salaried managers
active in the Mitsubishi zaibatsu during the Meiji period. 10 This table includes those
who were educated at Terakoya (temple schools) of the Edo period and secondary
educational institutions and therefore defines salaried managers rather broadly.
Borrowing the term coined by Yukichi Fukuzawa, Morikawa replaces the term
salaried managers with “samurai scholars”,11 stating that “the active hiring of a
large number of ‘samurai scholars’ ahead of others (Mitsubishi in the Meiji 10s
[1877–] and Mitsui in the Meiji 20s [1887–]) and their placement in key policy-
making positions, created important conditions for their development as major
zaibatsu.” 12
Noteworthy here is that Morikawa dates the active hiring of “samurai scholars” to
the Meiji 10s [1877–] for Mitsubishi and the Meiji 20s [1887–] for Mitsui. Thus,
Morikawa contends that Mitsubishi was one step ahead of Mitsui in terms of hiring
salaried managers. This lead was possible because the two owner managers, Yataro
the founder, and Yanosuke his successor, were enthusiastic about hiring salaried
managers from the very early days of Mitsubishi.
9
Op. cit., Nagasawa, Y. (1978), p. 51.
10
Op. cit., Morikawa, H. (1980), pp. 17–18.
11
See Fukuzawa, Y. (1959). Jitsugyoron: Fukuzawa Yukichi zenshu dairokkan (Practical business
theory: The complete works of Yukichi Fukuzawa, vol. 6) (pp. 157–158). Tokyo: Iwanami Shoten
Publishers.
12
Appointment of Salaried Managers 59
Table 1 Salaried managers active in Mitsubishi Zaibatsu during the Meiji Era
Academic Company, last job in
Name background Job before Mitsubishi Meiji Era
Heigoro Keio Gijuku Keio Gijuku teacher Mitsubishi Goshi,
Shoda Executive
Ryohei Keio Gijuku Mitsubishi Goshi,
Toyokawa Executive
Kyugo Tokyo Kaisei School, Mitsubishi Goshi,
Nanbu study abroad Executive
Head of Mining
Department
Toshimi Mitsubishi Commer- Civil servant, family business Tokyo Warehouse,
Takechi cial School Chairman
Shin Uryu Edo era secondary Railroad dormitory Mitsubishi Goshi, Head
education of Sales Department
Seijiro Sho The University of Mitsubishi Goshi, Head
Tokyo, Law of General Affairs
Rokuro Edo era secondary Government-run Nagasaki Mitsubishi Goshi, Head
Mizutani education, worked in Shipyard & Machinery Works of Shipbuilding
UK Department
Chinji The University of Geological Survey of Japan, Mitsubishi Goshi, Head
Harada Tokyo, Science, Department of Agriculture and of Mining Department
Mining Commerce
Kunpei Edo era secondary 119th National Bank Mitsubishi Goshi, Head
Mimura education of Banking Department
Sadae Higher commercial Higher commercial school Mitsubishi Goshi, Head
Eguchi school teacher of Sales Department
Shuichi Imperial University Mitsubishi Goshi, Head
Kirishima Law Department of Real Estate
Department
Kusuyata Imperial University Mitsubishi Goshi, Head
Kimura Law Department of General Affairs
Department
Hidemi Military Academy Chief Engineer of the Navy Mitsubishi Goshi, Head
Maruta of Shipbuilding
Department
Michinari The University of Tokio Marine,
Suenobu Tokyo, Law Chairman
Taijiro Keio Gijuku Normal School (Shihan Gakko) Nippon Yusen Kaisha,
Yoshikawa Headmaster President
Kosaku Temple school Nippon Yusen Kaisha,
Uchida Senior Managing
Director
Kondo Edo era secondary Nippon Yusen Kaisha,
Renpei education, Left President
Daigaku Nanko
Masabumi Edo era secondary Nippon Yusen Kaisha,
Asada education Senior Managing
Director
(continued)
Table 1 (continued)
Academic Company, last job in
Name background Job before Mitsubishi Meiji Era
Shoichi Keio Gijuku Interior Ministry official Nippon Yusen Kaisha,
Iwanaga Senior Managing
Director
Zenkichi Daigaku Nanko Education Ministry official Nippon Yusen Kaisha,
Ogawa Managing Director
Several salaried managers who joined Mitsubishi at that time are not included in
Table 1. For example, Eiji Asabuki (later, Chairman of Oji Paper Co., Ltd.), and
Tatsuo Yamamoto (later, Governor of the Bank of Japan), who were both Keio
Gijuku graduates, as well as Takaaki Kato (later, prime minister) and Hakaru Isono
(later, founder of Meidi-ya), both The University of Tokyo graduates.
Promotion of Industrialization
Finally, as noted, the promotion of industrialization constituted the third condition

for a zaibatsu’s establishment. In the case of Mitsubishi, too, salaried managers
played an important role in industrializing.
Heigoro Shoda is a representative example of a salaried manager who led
industrialization effort at Mitsubishi. Historian Shigeaki Yasuoka explains:
Heigoro Shoda is credited with turning the Nagasaki Shipyard into a shipyard “on par with
those of developed countries” and making it the foundation of Mitsubishi’s heavy industry.
Shoda studied at Keio Gijuku, where he was highly regarded by Yukichi Fukuzawa, and
was even under consideration as potential head of Keio after Fukuzawa’s death. In Meiji
29 [1896], when the Navigation Promotion Law and the Shipbuilding Promotion Law were
promulgated, Shoda who was then the chief executive of Mitsubishi, secured an order from
NYK to build world-class steamers and began modernizing the Nagasaki Shipyard and
Machinery Works. Although supporters of the coal mining industry, Mitsubishi’s core
business at the time, had opposed to investing the profits in shipbuilding, Shoda moved to
Nagasaki to lead the shipyard between Meiji 30 and Meiji 34, directing operations, and he
succeeded in building the 600-ton Hitachi-maru. In Meiji 38 under his leadership, the Kobe
Shipyard was completed under his leadership. Shoda’s activities became the foundation for
later aircraft, automobile, and electric machinery manufacturing. In addition, Shoda contrib-
uted to the establishment of the Meiji Life Insurance Company and Sanyo Railway Com-
pany. The Marunouchi district of the Mitsubishi Estate was originally state-owned land, but
Mitsubishi President Yanosuke Iwasaki obtained its lease at the suggestion of Shoda who
was in England. As chief executive, he [Shoda] was in charge of most of the management of
Mitsubishi Goshi Kaisha (established in Meiji 26); he retired in Meiji 43.13
13
Yasuoka, S. (1979). Zaibatsu no takaku-teki kogyoka: Nakamigawa Hikojiro to Shoda Heigoro
(The diversified industrialization of zaibatsu: Hikojiro Nakamigawa and Heigoro Shoda). In
op. cit., K. Nakagawa, H. Morikawa, & T. Yui (Eds.) The enlarged edition of basic knowledge
on modern Japanese business history. (p. 125).
Promotion of Industrialization 61
This positive assessment of Shoda is widely shared among business historians.

Morikawa, for example, has also taken up Hikojiro Nakamigawa of Mitsui and
Heigoro Shoda of Mitsubishi as representative of salaried managers who promoted
industrialization.14
parts of it.
14
See op. cit., Morikawa, H. (1980), pp. 22–31.
Case 6 Zenjiro Yasuda and Soichiro Asano:
Zaibatsu Formation Through
the Collaboration of Two Owner-Managers
Abstract This case introduces Zenjiro Yasuda, the owner-manager of a financial

zaibatsu that lent funds to the companies of Soichiro Asano, a founder of an
industrial zaibatsu, concentrating on the transportation of coal and cement during
the Meiji period.
General Zaibatsu and Financial/Industrial Zaibatsu
As seen in Cases 4 and 5, Mitsui and Mitsubishi both formed a zaibatsu by breaking
away from political powers, appointing salaried managers, and pursuing industrial-
ization. The drastic changes in the business environment since the opening of the
ports at the end of the Edo period had expanded business opportunities, and some
other owner-managers (aside from those at Mitsui and Mitsubishi) also aimed to
form their own zaibatsu. However, from a long-term perspective, these zaibatsu
turned out to be very different in nature. Few “general zaibatsu” other than Mitsui
and Mitsubishi successfully grew their businesses in all areas of mining, manufactur-
ing, logistics and finance. The majority focused on one of these four areas, such as
becoming “financial zaibatsu” or “industrial zaibatsu.” For convenience, the term
“industrial zaibatsu” as used here to collectively refers to zaibatsu engaged in
mining, manufacturing, and logistics.
We will focus here on Zenjiro Yasuda as the founder of a financial zaibatsu and
Soichiro Asano as the founder of an industrial zaibatsu. Both were born in what is
now Toyama Prefecture, and both are notable for their close collaboration.
© Kreab K.K. 2023 63

64 Case 6 Zenjiro Yasuda and Soichiro Asano: Zaibatsu Formation Through. . .
“Yasuda Zenjiro” by Tsunehiko Yui
Historian Tsunehiko Yui provides an excellent biography of Zenjiro Yasuda in his

book, “Zenjiro Yasuda: Good Things Come to Those Who Work Out a Strategy”
(Minervashobo, 2010). I once wrote a book review in the periodical Japan Business
History Review1 that I would like to share here.
Despite the fact that he single-handedly built the Yasuda Zaibatsu, one of the “four major
zaibatsu” in prewar Japan, few critical biographies of Zenjiro Yasuda have been published to
date. However, Tsunehiko Yui’s book in “Zenjiro Yasuda: Good Things Come to Those
Who Work Out a Strategy,” fills this lacuna. The book is organized as follows:
Preface
Chapter 1: From Hometown to Edo, Managing Yasuda-ya – Peddling, Servitude, and
Independence
Chapter 2: Meiji Restoration Reforms and Zenjiro Yasuda – The Accumulation, History, and
Substance of “Extraordinary Wealth”
Chapter 3: From Money Exchanger to Banker: The Third National Bank and Yasuda Bank
Chapter 4: Establishment of the Bank of Japan and Zenjiro Yasuda – Previously Unknown
Activities and Roles
Chapter 5: Diversification and the Formation of Zaibatsu: Rapid Growth and Its
Characteristics
Chapter 6: Great Achievement as a Banker and the Other Side of the Story: The Failure of
Industrialization and the Limits of Modernization
Chapter 7: Loneliness in Later Years and Death: The Fate of a Banking Champion
Appendix, References, Afterword, Zenjiro Yasuda Timeline, Index of Personal Names and
Matters
Since “Zenjiro Yasuda” is a critical biography, the chapters are arranged chronolog-
ically and discuss Zenjiro’s life in detail. Chapter 1 begins with Zenjiro’s birth in
1838 (Tenpo 9) and follows his life up to relocation to a shop in Nihonbashi Kobuna-
cho in 1866 (Keio 2); Chapter 2 covers the period until shortly before his appoint-
ment as the exchange commissioner by the Ministry of Justice in 1874 (Meiji 7);
Chapter 3 leads up to the opening of Yasuda Bank in 1880; Chapter 4 continues to
his appointment as a director of the Bank of Japan in 1882 and response to the
1890–1891 economic depression; Chapter 5 covers the period until just before his
60th birthday in 1897; Chapter 6, from his 60th birthday to 1908; and Chapter 7
continues from 1909 to his unexpected death in an attack by thugs in 1921 (Taisho
10), all discussed in detail.
The biography reveals previously little known facts , making full use of primary
historical documents and findings from a vast amount of earlier research. Examples
include the descriptions of Zenjiro’s toy peddling business in Edo, his speculative
actions over Bunkyu Eiho coins and subsequent failure, his business diversification
1
Kikkawa, T. (2012a). Shohyo: Yui Tsunahiko cho ‘Yasuda Zenjiro: Kaho ha nettemate’ (Book
review: ‘Zenjiro Yasuda—Good things come to those who work out strategy’ by Tsunehiko Yui).
Japan Business History Review, 47(2). See also Kikkawa, T. (2010, December 19). Shohyo Yui
Tsunahiko cho ‘Yasuda Zenjiro’ (Book review: ‘Zenjiro Yasuda’ by Tsunehiko Yui). The Nikkei.
“Yasuda Zenjiro” by Tsunehiko Yui 65
immediately after the Meiji Restoration, the exposure of the shogunate’s official
commerce and Dajokan bill transactions, his aggressive business development effort
in Tochigi Prefecture, the relationship between Third National Bank and Yasuda
Bank, and his activities as a Bank of Japan director. These are the book’s main
highlights. A notable example is the description of relations between the Third
National Bank and the Yasuda Bank: “It is undeniable that the Third National
Bank was ostensibly an open bank, which limited Zenjiro’s ability to exercise his
business acumen and ability as he wished. On the other hand, the interior workings
of the Yasuda Bank, owned by the Yasuda family, was a bank whose interior
workings were unknown to the outside, so that Zenjiro could operate as he wished,
sometimes using the former government office or Yasuda Shoten (real estate busi-
ness) to fully demonstrate his business ability in accordance with his own interests”
(p. 104). These are fascinating and persuasive sentences.
An important milestone in the discovery of primary historical documents was the
publication of “Yasuda Zaibatsu” (Nikkei Publishing Inc.) in 1986, which was
edited by the author Tsunehiko Yui. How this book came to be is described in its
“Preface”:
The author was in charge of covering the entrepreneurial activities of the company’s
founder, Zenjiro Yasuda, and was able to clarify how and to what extent he accumulated
his “extraordinary wealth” in the first year of the Meiji era by examining the account ledgers
in Zenjiro’s own handwriting (known as the “Actual Assessment Report”). However, the
investment activities and their results from other periods were not clear from the documents
available at the time.
Later, however, Mr. Hajime Yasuda, the third head of Yasuda Zaibatsu (then chairman of
Yasuda Life), who had read “Yasuda Zaibatsu,” allowed me to see the “Diary” and “Notes”
that had been kept and stored deep inside the warehouse as well as to photocopy all of these
at the General Affairs Division of Yasuda Real Estate Co. for the purpose of advancing
research on his grandfather. These are valuable handwritten documents spanning 30 years of
the Meiji era, and I was strongly motivated to write his biography by carefully studying these
documents (pp. i–ii).
Thanks to this type of archival research, Yui uncovered much previously unknown
information.
When we read a well-written biography, we are strangely moved more by stories
of failure than by the protagonists’ stories of success. The same is true with
this book.
Although Zenjiro Yasuda displayed unparalleled talent in the financial business,
he was unable to achieve any notable results in business management outside of
finance. In contrast, Soichiro Asano, a fellow [Toyama] countryman, lacked finan-
cial resources but was successful in his business. As a result, Zenjiro’s involvement
in business management eventually takes the indirect form of financial support for
Soichiro Asano.
After the successive deaths of his adopted sons, whom he had expected to become
his business successors, Zenjiro Yasuda handed over the patriarchal position to his
son-in-law, Zenzaburo, in 1913. However, Zenzaburo subsequently came into
conflict with Zenjiro’s own children (including Zennosuke), and eventually Zenjiro
broke with Zenzaburo and his wife Teruko (Zenjiro’sown beloved daughter), and at
the age of 83 returned to the frontline of business management in 1920. It is possible

to attribute Zenjiro Yasuda’s inability to cultivate successors may be considered his
greatest failure.
Passages like this strongly impress readers. Yui also provides an in-depth discus-
sion of Zenjiro Yasuda’s failures in a separate article, “The Evolution and Sustain-
ability of Zaibatsu: The Rapid Rise and Setbacks of the Yasuda Zaibatsu” (included
in ‘Shinka no keieishi: Hito to soshiki no firekisibirithi (Evolution in Business
History: The Flexibility of People and Organizations)’ Takeo Kikkawa and
Masakazu Shimada, eds. Yuhikaku, 2008, Chapter 4). In that article, Yui analyzes
the business activities of Zenjiro Yasuda who built up the Yasuda Zaibatsu during
his own lengthy lifespan, making Yasuda Zaibatsu one of the “Big 4” zaibatsu.
While presenting new details about his activities as a Bank of Japan director, and the
support he received from politicians influenced by the Satsuma and Choshu feudal
domains, the article projects the evolution of Zenjiro Yasuda the man onto the
evolution of the Yasuda Zaibatsu as a whole. In the process, we observe the conflict
and breakup with his adopted son, Zenzaburo, his devotion to his business partner,
Soichiro Asano, and the crisis that ensued, suggesting the difficulty of sharing or
transmitting a culture that leads to organizational growth.
Yui’s book “Zenjiro Yasuda” and his article “The Evolution and Sustainability of
Zaibatsu” delve into the succession problems with dramatic flair. On the other hand,
they both leave one wishing that Yui had delved deeper into the psychology of
Zenjiro Yasuda to describe his relationship with Soichiro Asano, since Zenjiro must
have felt considerable conflict about his dependence on Soichiro.
To be sure, lack of psychological analysis does not diminish the value of Yui’s
study. Furthermore, Yui writes not only about the failures of Zenjiro Yasuda, but
also about his shining successes. This book, describing the light and the shadows of
Zenjiro’s life, will no doubt be read for many years to come as the definitive
biography of Yasuda.
Brief Biography of Zenjiro Yasuda
Let us take another look at the life of Zenjiro Yasuda who was born in 1838 (Tenpo
9) in the castle town of Toyama. His childhood name was Iwajiro. His father, Zen-
etsu (Zenjiro IV), had obtained the position of a low-ranking samurai in the Toyama
domain when Iwajiro was a child. After attending a temple school in Toyama,
Iwajiro lived a life of peddling and writing. In 1857 (Ansei 4), he moved to Edo in
his second attempt to flee his hometown, and under the name Chubei he earned a
living by working at a money-exchange store and peddling toys. In 1863 (Bunkyu
3), he became independent and in 1864 (Genji 1) he changed his name to Zenjiro,
opening Yasuda-ya, a dried bonito shop and money changing business on
Nihonbashi Ningyocho Dori.
Achieving success, Yasuda-ya changed its name to Yasuda Shoten in 1866 (Keio
2). In this regard, historian Kazuo Sugiyama notes:
Brief Biography of Zenjiro Yasuda 67
Following its launch, in two years Yasuda-ya became a dedicated money changing opera-
tion, and changed its name. As Yasuda Shoten, the company grew by taking advantage of
turmoil in money markets at the end of the Edo period and during the Meiji Restoration.
While his peers closed shop fearing violence by nativist ronin [masterless samurai
opposing foreign influence], Zenjiro singlehandedly continued buying up old gold and silver
coins. It was Zenjiro’s daring and agile activities that elevated Yasuda Shoten’s reputation.
Zenjiro was the first to get wind of the government’s policy of using government bills as
equivalent to regular gold and silver during the Meiji Restoration, and he purchased large
quantities of Dajokan bills that had fallen to 30% of their original value. Obviously this
purchase earned Yasuda Shoten a significant profit.
Yasuda Shoten later served as the treasurer for the Ministry of Justice, the Tokyo
Prefectural Government, and other government agencies, and used this money to purchase
Chitsuroku and Kinroku public bonds whose price had fallen to 70% of face value, making
them a lucrative and stable investment. As the business grew, Yasuda Shoten began to
implement a series of reforms such as creating a new clause regarding capital funds and
around Meiji 10 (1877) adopted the balance-sheet method of accounting. Thus, Yasuda
Shoten grew to effectively become a bank.2
Zenjiro’s “bold and agile moves”—purchase of old gold and silver coins at the end
of the Edo period, purchase of Dajokan bills immediately after the Meiji Restoration,
and acquisition of the Chitsuroku and Kinroku public bonds—reflected his outstand-
ing talent in finance that made him one of Japan’s leading bankers.
In 1877 (Meiji 10), Zenjiro established the Third National Bank in partnership
with Hachiemon Kawasaki and Ichirozaemon Matsushita. Yasuda also reorganized
Yasuda Shoten and opened Yasuda Bank in 1880. Why did he open the Third
National Bank and Yasuda Bank in a span of only 3 years? Sugiyama explains:
“Although the Third National Bank was authorized to issue banknotes, it was
required to report its business to the government. Also, as a joint stock organization,
it needed to respect the opinions of other influential shareholders, even though
Zenjiro was the major shareholder. However, response to dramatic changes in the
economic environment required decisive, prompt, and bold action under his own
responsibility. Such freedom could only be ensured in a private company—this was
Zenjiro’s thinking”.3 Interestingly, this view is similar to Tsunehiko Yui’s perspec-
tive as described earlier.
After becoming a renowned banker, Zenjiro was appointed as Director and Head
of the Discount Department of the Bank of Japan upon its opening in 1882.
Henceforth, Yasuda continued to hold key positions at the Bank of Japan. At the
same time, Zenjiro diversified his business beyond banking. Yet with the exception
of the financial sector, most of Yasuda’s diversification efforts were unsuccessful.
Historian Toshimitsu Asano elaborates:
Yasuda is often referred to as a financial zaibatsu. However, this characterization may be
inaccurate. Zenjiro was an entrepreneur who aimed to diversify his business, a common
practice among entrepreneurs at that time, and the number of businesses he invested in and
2
Sugiyama, K. (1979). Kojin ginko no sosetsu: Yasuda-ginko no seisei (The foundation of an
individual bank: The creation of Yasuda Bank). In op.cit.,K. Nakagawa, H. Mori, & T. Yui (Eds.)
The enlarged edition of basic knowledge of modern Japanese business history. (pp. 28–29).
3
Ibid., p. 29.
managed was extensive. His first venture outside of banking was the insurance business,
closely related to his existing business – Kyosai Gohyakumei Company (which later became
Yasuda Life Insurance Company). However, he also took a strong interest in the so-called
“industry” and his business scope was extensive. He invested in and operated almost equally
in all of the following areas: sulfur mining, coal mining, nail-manufacturing, thread-spin-
ning, iron, railroad, and shipbuilding industries.4
Yasuda thus managed diverse businesses from various angles, but ultimately he could
not sustain most of them.... The main reason for this seems to be that Zenjiro lacked a strong
management staff around him. This lack of managerial staff was the major difference
between Yasuda and Mitsui, Mitsubishi, and Sumitomo. Yasuda’s voracious appetite for
business was fulfilled not by those in proximity who were involved in his businesses, but
rather indirectly by the bold industrial entrepreneur, Soichiro Asano.5
Historian Toshimitsu Asano believes that Zenjiro’s failure to diversify his business
was due to his late start in appointing salaried managers and building up the
managerial staff. Although Zenjiro did not succeed in commercializing his own
“industry,” his financial contributions supporting other entrepreneurs’ attempts to
commercialize their industries was highly significant. The main recipient of his
support was Keijiro Amenomiya until the middle of the Meiji period, and Soichiro
Asano thereafter. Asano will be discussed in the next section. Yasuda provided
active support to Amenomiya, an energetic entrepreneur hailing from the Koshu
region (present-day Yamanashi prefecture), who made a significant contribution to
the emergence of the railroad industry in Japan, by investing in the Kobu Railway
Company.
Zenjiro Yasuda retired from the business frontline in 1913 (Taisho 2). In 1921, he
died tragically after being attacked by members of the Kokusui-kai (a right wing
organization) at his villa in Oiso.
Brief Biography of Soichiro Asano6
Soichiro Asano was born in 1848 (Kaei 1) in Imizu County, Etchu Province
(present-day Himi City, Toyama Prefecture). He was involved in various businesses
from his youth, but left his hometown after repeated business failures and moved to
Tokyo in 1871 (Meiji 4). After working as a water seller and wood merchant, he
settled down as a coal merchant.
4
Asano, T. (1978). Yasuda Zenjiro: Ishoku no kinyuzaibatsu keiseisha (Zenjiro Yashuda: A unique
figure who shaped a financial zaibatsu). In op.cit., S. Yasuoka, Y. Nagasawa, T. Asano,
Y. Mishima, & M. Miyamoto (Eds.) Japanese entrepreneurs 1: The Meiji edition (p. 110).
5
Ibid., p. 115.
6
Explanation based mainly on Teratani, T. (1979). Asano Soichiro to Asano zaibatsu: Sangyo
zaibatsu no keisei (Soichiro Asano and Asano zaibatsu: The formation of industrial zaibatsu). In op.
cit., K. Nakagawa, H. Morikawa, & T. Yui (Eds.) The enlarged edition of basic knowledge
on modern Japanese business history (pp. 129–130).
Brief Biography of Soichiro Asano 69
While selling coal, he turned his attention to coke, which at the time was being
discarded, as it had no known use. After confirming that coke could be used as fuel,
he became a successful coke merchant. His success both as a coal and coke merchant
caught the attention of businessman Eiichi Shibusawa, who offered Soichiro
support.
Soichiro then turned his attention to the cement business. In 1881, he was granted
a lease for the government-run Fukagawa Cement Works, his guarantor at the time
Eiichi Shibusawa. After he successfully restructured the government-run Fukagawa
Cement Works which had been forced to suspend operations due to poor perfor-
mance, in 1883, the government sold the factory to Soichiro, who renamed it the
Asano Cement Company. It grew steadily and became the core company of the
Asano Zaibatsu.
In addition to the cement business, Soichiro became involved in various coal-
related businesses, including the management of the Iwaki Coal Mine Company and
of Tokyo Gas Company. Of these two companies, Eiichi Shibusawa was listed as a
partner in Tokyo Gas.
Soichiro’s continued focus on fuels also led him to the oil business. Through the
introduction of Eiichi Shibusawa, he imported and sold Russian oil through Marcus
Samuel Trading Company (the predecessor of Rising Sun Oil Company and Shell
Oil), and then turned to selling domestic oil produced by the Japanese company
Hoden Oil. However, Soichiro’s own oil business came to an end in 1904 when it
merged with Hoden Oil. In turn, Hoden Oil merged with Nippon Oil in 1921
(Taisho 10).
Through the transportation of coal and cement, Soichiro also became involved in
shipping, establishing Toyo Steamship Company in 1896 (Meiji 29). The company
grew rapidly during the boom years following World War I and became one of the
largest shipping companies after Nippon Yusen and Osaka Shosen.
In addition, in cooperation with Zenjiro Yasuda, Soichiro, established the
Tsurumi Maichiku Company in 1913 (Taisho 2), working on land reclamation for
the Keihin Industrial Zone. He also established the Asano Shipyard in 1916.7
As shown, Soichiro’s appetite for business was boundless. In 1918, he
established the Asano Family Company as a holding company to control his sub-
sidiaries in cement, coal, shipping, land reclamation, shipbuilding, and other
businesses.
Although Soichiro aggressively diversified his business, he never fully entered
the financial sector; Soichiro died in 1930. The only exception was his acquisition of
Daigo Bank (Fifth Bank) in 1916 (Taisho 5), which he ran as Nihon Chuya Bank
(later, Asano Chuya Bank), but the bank performed poorly and was sold to the
Yasuda Zaibatsu in 1922, becoming once again Nihon Chuya Bank. Thus, Asano
Zaibatsu was a typical industrial zaibatsu. Soichiro Asano died in 1930.
7
For details of Asano Shipyard see: Kobayakawa, Y. (1986). Yuki Mori kaikaku to Yasuda zaibatsu
no saihensei (Yuki and Mori reforms and the reorganization of Yasuda zaibatsu). In T. Yui (Eds.),
Yasuda zaibatsu (Yasuda zaibatsu). Tokyo: Nikkei Publishing Inc.
Cooperation Among Owner-Managers
As he developed his businesses, Soichiro Asano often received support from Eiichi
Shibusawa. In this case, an owner-manager was helped by an investor-manager. It is
noteworthy that Soichiro was also often supported financially also by Zenjiro
Yasuda. Historian Yui describes the relationship between Yasuda and Asano in
the mid-Meiji period as follows:
During this period, Zenjiro was not successful in managing modern industry. However, not
all of Zenjiro’s effort toward industrialization failed. After Keijiro Amenomiya [who died in
Meiji 36/1903], Zenjiro saw in Soichiro Asano the bold entrepreneurial spirit and managerial
talent needed to tackle modern industry.8
The first investment Zenjiro made for Soichiro Asano was in Toyo Steamship Company,
established in April of Meiji 29 [1896] after the Sino-Japanese War. As is well known in the
history of Japanese shipping, Toyo Steamship was intended to be an international liner to
challenge the monopoly held by Nippon Yusen at that time. Soichiro Asano invited dozens
of acquaintances from the Keihin [industrial region in Eastern Japan] area, including Eiichi
Shibusawa, Kihachiro Okura, Zenjiro Yasuda, Sobei Iwade, Saburobei Oku, and Shinzo
Tanaka, and gave a presentation about the establishment of the new company. Reportedly,
Zenjiro was the first to openly support the idea.9
In 1899, Yasuda Bank began lending to Asano Cement. Historian Tsunehiko Yui,
referring to the relationship between Soichiro Asano and Zenjiro Yasuda during the
World War I era, noted: “Soichiro Asano’s Toyo Stemship and Asano Cement were
two of the companies that grew particularly rapidly during this period. Although
Zenjiro had already retired, he trusted Asano and continued to invest in and finance
these two companies, which he had already invested in, as quasi-Yasuda companies.
The strong performance of Yasuda-affiliated banks during World War I was largely
due to Asano’s unusually vigorous entrepreneurship.”10
Historian Takeaki Teratani outlines the relationship between the Asano Zaibatsu
and the Yasuda Zaibatsu: “The Asano Zaibatsu is an industrial zaibatsu that lacks a
financial sector, and its weak capital base has often been highlighted, but through its
close relationship with Yasuda, a financial zaibatsu, the two often worked together to
resemble a single, general zaibatsu. Some view Asano as being in charge of the
industrial sector of such a general zaibatsu.”11 Both Soichiro and Zenjiro were
owner-managers. In the process of Japan’s industrialization, owner-managers some-
times cooperated with each other, as evident here.
8
Yui, T. (2010). Yasuda Zenjiro: Kaho-ha nettemate (Zenjiro Yasuda: Good things come to those
who work out strategy). Kyoto: Minervashobo. (p. 255).
9
Ibid., pp. 255–256.
10
Ibid., p. 308.
11
Op. cit., Teratani, T. (1979), p. 130.
Cooperation Among Owner-Managers 71
parts of it.
Case 7 Eiichi Shibusawa: Mobilization
of Managerial Resources by
an Investor-Manager
Abstract This chapter discusses Eiichi Shibusawa, a representative example of an

investor-manager who played a pivotal role in the process of Japan’s
industrialization.
A Tumultuous Life
We now turn to the third type of manager, the investor-manager, differing from the
salaried manager and the owner-manager. Eiichi Shibusawa is a representative
example of an investor-manager who played an active role in the process of Japan’s
industrialization.1
On the Shibusawa Eiichi Memorial Foundation’s website, the following over-
view is available in the “Brief Biography of Eiichi Shibusawa” section. The follow-
ing is a translation of the Japanese site.
Eiichi Shibusawa was born on February 13, 1840 (Tenpo 11), in a farmhouse in Chiaraijima
village in present-day Fukaya City, Saitama Prefecture. While assisting his family with farm
work, the production and sale of indigo beads, and sericulture, his father taught him with his
cousin Atsutada Odaka [Junchu Odaka] from an early age, and was introduced him to the
study of the “Analects” [The Analects of Confucius] and other subjects. Eiichi and his
cousin, influenced by the Sonno Joi ideology [to promote the Emperor and expel foreign
1
For details of Shibusawa Eiichi, see Shimada, M. (2007). Shibusawa Eiichi no kigyosha katsudo
no kenkyu: Senzenki kigyo sisutemu no soshutsu to shusshisha keieisha no yakuwari (Studies of the
activity of Eiichi Shibusawa as an entrepreneur: The creation of prewar corporate systems and the
role of investors and corporate managers). Tokyo: Nihon Keizai Hyouronsha; Shimada, M. (2011).
Shibusawa Eiichi: Shakaikigyoka no senkusha (Eiichi Shibusawa: A pioneering social-oriented
entrepreneur). Tokyo: Iwanami Shoten Publishers; Kikkawa, T., & Fridenson, P. (Eds.) (2014).
Gurobaru shihonshugi no nakano Shibusawa Eiichi: Gappon kyapitarizumu to moraru (Eiichi
Shibusawa in global capitalism: Gappon capitalism and morals). Tokyo: Toyo Keizai Inc.;
Miyamoto, M. (Ed.) (2016). Nihon no kigyoka 1 Shibusawa Eiichi: Nihon no kindai no tobira
wo hiraita zaikai rida (Japanese entrepreneur 1: Eiichi Shibusawa—business leader who opened
the doors to Japan’s modernization). Kyoto: PHP Institute, Inc.; and Fridenson, P., & Kikkawa,
T. (Eds.) (2017). Ethical capitalism: Shibusawa Eiichi and business leadership in global perspec-
tive. Toronto: University of Toronto Press.
© Kreab K.K. 2023 73

74 Case 7 Eiichi Shibusawa: Mobilization of Managerial Resources by. . .
forces from Japan], made plans to take over Takasaki Castle but decided against it and
headed for Kyoto. There, Eiichi entered the service of Yoshinobu Hitotsubashi (later,
Yoshinobu Tokugawa), where he gradually gained recognition for his abilities in improving
the family affairs of the Hitotsubashi family.
At the age of 27, Eiichi accompanied Akitake Tokugawa, later lord of the Mito Domain
and the younger brother of the 15th shogun Yoshinobu Tokugawa, to the World Exposition
in Paris. There he observed and learned about life in European countries and gained a broad
understanding of the developments in various advanced economies.
After the Meiji Restoration, Eiichi returned from Europe and established the “Commer-
cial Law Office” in Shizuoka. He was invited by the Meiji government to become a member
of the Ministry of Finance, getting deeply involved in Japan’s nation-building efforts.
After stepping down from the Ministry of Finance in 1873 (Meiji 6), Eiichi flourished as
a businessman in the private sector. He started his new career as superintendent (later,
president) of the First National Bank (Daiichi Kokuritsu Ginko). Eiichi, based at First
National Bank, focused on creating and fostering corporations through joint-stock company
organizations. In addition, he continued to preach the “unity of morality and economy”
principle and was involved with about 500 companies in his lifetime. Eiichi devoted himself
to the support of some 600 educational institutions, social and public services, and private-
sector diplomacy – greatly missed by many when he passed away on November 11, 1931
(Showa 6) at the age of 91.
Clearly, over the course of his 90-plus years, Eiichi Shibusawa changed his profes-
sional position several times: from farmer to shogunate retainer (samurai) to official
of the Meiji government to private businessman. In addition, although initially a
believer of Sonno-joi ideology of revering the Emperor and expelling foreign forces,
he changed his thinking after traveling to Europe at the end of the Edo period,
becoming a business leader with global perspective in prewar Japan.
These shifts do not mean that Eiichi led an opportunistic life without vision—
quite the opposite. During the turbulent period from the end of the Edo era through
the Meiji Restoration to the early Showa era, he placed himself in the most effective
position at any given moment to promote Japanese modernization and industriali-
zation, doing so with great dedication. In this, his approach and purpose were
consistent.
During his 90-plus years, Japan experienced a series of transitions: the opening of
the ports at the end of the Edo period, the Meiji Restoration, the Industrial Revolu-
tion, urbanization and electrification, and establishment of heavy and chemical
industries, continuously following the path of modernization and industrialization.
Eiichi always stood at the forefront of this process—the reason he is often called the
“father of Japanese capitalism.”
As an Investor-Manager
Eiichi Shibusawa’s activities after resigning from the Ministry of Finance and
becoming a private-sector businessman can be viewed from four different perspec-
tives: (1) investor-manager; (2) social entrepreneur; (3) business leader; and
As an Investor-Manager 75
(4) private-sector diplomat. The following sections will discuss each of these in
depth in turn.
Eiichi Shibusawa was not a salaried manager like Hikojiro Nakamigawa, nor an
owner-manager like Yataro Iwasaki, Zenjiro Yasuda, or Soichiro Asano, but rather
an investor-manager. Masakazu Shimada, who identified Shibusawa as such, exam-
ined Shibusawa’s business activities in detail.2
According to Shimada, Shibusawa’s entrepreneurial activities had two aspects:
(1) simultaneously establish multiple modern companies, and (2) set on track
infrastructure-related industries that require long-term commitment and are required
for modernization. In the former, the following mechanism was important: establish
the stock price to secure funds by selling part of the shares, and then use the funds to
establish the next company. To accomplish the latter, “the utilization of a wide range
of entrepreneurial contacts with financial resources” was of great importance.3
Shimada classifies into three categories Shibusawa’s roles at shareholders’ meet-
ings following the establishment of a company: (1) participation as a major share-
holder; (2) involvement as an external executive; and (3) offer of support for mergers
outside of shareholder meetings. Shimada concludes that “in all cases, the function
expected of Shibusawa was to resolve problems through coordination, arbitration,
and mediation among conflicting interests.”4
One investor-manager similar to Eiichi Shibusawa is Tomoatsu Godai, mainly
active in Osaka. The two were referred to as “Eiichi Shibusawa of the East and
Tomoatsu Godai of the West” (East = eastern Japan; West = western Japan).
As we see in the contrasting picture of “individualism versus collectivism,” the
difference between the owner-manager and the investor-manager was that the former
considered the company to be his own, while the latter viewed it as belonging to a
large number of shareholders. Moreover, the difference between a salaried manager
and an investor-manager is that the former became a manager based solely on
expertise, not on investment, whereas the latter became a manager based on capital
contribution. Thus, the investor-manager was a third type of businessman, different
from the owner-manager or the salaried manager.
Table 1 shows a selection of Shibusawa’s activities as an investor-manager, taken
from the “Chronology” section of the Shibusawa Eiichi Memorial Foundation’s
website.
As professional managers were promoted within the company, they often
acquired shares in the company and became investors. However, they were pro-
moted only because of their expertise, with the investment only an incidental result
of their promotion.
2
Op. cit., Shimada, M. (2007).
3
Ibid., chap. 1.
4
Ibid., chap. 3.
Table 1 Eiichi Shibusawa’s activities as an investor-manager

1873 (Meiji Opened First National Bank, served as superintendent. Founded Shoshi Kaisha
6) (later, Chairman of the Board, Oji Paper Company)
1875 President, First National Bank
1883 Inaugurated Osaka Spinning Company (Osaka Boseki Kaisha). Founder (later,
Advisor)
1884 Board member of Nippon Railroad Company (later, Director)
1885 Founded Nippon Yusen Kaisha (later, Director). Founded Tokyo Gas (Chairman
of the Founding Committee and later, Chairman of the Board)
1886 Founded Tokyo Electric Light Company
1887 Founded Nippon Brick Manufacturing Company (later, Chairman of the Board).
Founded the Teikoku Hotel (Imperial Hotel) (later, Chairman of the Board)
1888 Founded Sapporo Biru Kaisha (Sapporo Beer Company) and Representative of
Founders (later, Chairman of the Board)
1889 Founded Tokyo Ishikawajima Shipyard Company (later, Chairman of the Board)
1892 Founded and became Director (later, Chairman of the Board) of Tokyo Savings
Bank
1895 Founded Hokuetsu Railway and became its Auditor (later, Senior Advisor)
1896 Founded and became a Director of Japan Sugar Refining Company (Board
member). Daiichi National Bank became Dai-Ichi Bank as operations matured
(continued to serve as President). Founding member of Nippon Kangyo Bank
1897 Inaugurated Shibusawa Warehouse Department (later, Founder of Shibusawa
Warehouse Company)
1900 Founding committee member, Industrial Bank of Japan
1906 Established and served as Director of Tokyo Electric Power Company. Founded
Keihan Electric Railway Company and served as Chairman of the Founding
Committee (later, Senior Advisor)
1907 Founded the Imperial Theatre Company (later, Chairman of the Board)
1909 Resigned from the Board of Directors of many companies and organizations
1916 (Taisho Stepped down as President of Dai-Ichi Bank and retired from the frontline of
5) business
1928 (Showa Founded Nippon Koku Yuso Kaisha
3)
Complementary Effects Among the Three Types of Managers
So far, we have seen that three types of businessmen were active in Japan’s
industrialization process: salaried managers such as Hikojiro Nakamigawa, owner-
managers such as Yataro Iwasaki, Zenjiro Yasuda, and Soichiro Asano, and inves-
tor-managers such as Eiichi Shibusawa. What was the relationship among these
three types?
As the scale of business expanded and diversification progressed, owner-
managers could no longer carry out business management on their own and began
to enlist salaried managers. A typical example of this was the active recruitment of
As a Social Entrepreneur 77
salaried managers by Yataro and Yanosuke Iwasaki, the founders of the Mitsubishi
zaibatsu.
Among the owner-managers who lacked sufficient fund-raising capacity, some
established joint stock companies or relied on bank loans from an early stage. In such
cases, they had to rely on the power of investor-managers such as Eiichi Shibusawa,
who was dubbed “the man behind new joint stock companies.” Also, as Shibusawa
was the president of Dai-Ichi Bank, he supported owner-managers through bank
loans. Soichiro Asano and Ichibei Furukawa were typical recipients of help from
Shibusawa.
Eiichi, an investor-manager, also focused on educating businessmen and
supported the establishment and development of many institutions of higher learn-
ing, such as the Tokyo Higher Commercial School (now Hitotsubashi University).
From the latter half of the Meiji period, the School’s graduates joined many large
corporations, including the Mitsui Group, thriving as salaried managers. Here, a
mechanism operated with investor-managers supporting the nurture of salaried
manager candidates.
The key to success or failure in the industrialization of a late developer lies in how
effectively scarce resources such as human and financial capital can be utilized.
Reviewing Japan’s industrialization process and the utilization of human capital, one
sees the significance of the active role allowed to salaried managers. The presence of
owner-managers who actively hired them, and investor-managers who supported
their education, was important.
In terms of financial capital, it was significant that salaried managers used the
owner-managers’ funds for industrialization, while the investor-managers mobilized
public funds by adopting a joint-stock company format at an early stage (Shibusawa
also mobilized funds in the form of bank deposits). Thus, three types of
businessmen—owner-managers, salaried managers, and investor-managers—
worked in complementary fashion to effectively utilize scarce resources of human
and financial capital. This mechanism can be usefully applied to the industrialization
process of all late developing economies.
As a Social Entrepreneur
As a social entrepreneur, Eiichi Shibusawa’s activities were diverse: supporting

vocational training and girls’ education, contributing to social projects, attempting
to unify different ideologies, and seeking to build a new labor-management rela-
tionship. Table 2 shows a selection of Shibusawa’s activities as a social entrepreneur,
based on the “Chronology” available on the Shibusawa Eiichi Memorial Founda-
tion’s website.
The historian Shimada evaluates Shibusawa as follows:
He not only successfully managed the various companies he was involved in, but also
actively expressed his opinions on economic policy, exercised a certain degree of influence,
and continued his active engagement in the development of human talent through social
Table 2 Eiichi Shibusawa’s activities as a social entrepreneur

1874 (Meiji Commissioned by the Governor of Tokyo to oversee shared funds
7)
1876 Administrative Director of Tokyo Foster Home (later, President)
1880 Founded and became a member of Hakuai-sha (later, a permanent member of the
Japanese Red Cross Society)
1885 President of Tokyo Foster Home
1886 Founded Ryumon-sha
1888 Opened Tokyo Jogakkan [Tokyo School for Women]; became its Auditor (later,
Principal)
1901 Opened Japan Women’s University (Nippon Joshi Daigakko) and became its
Auditor (later, Principal)
1912 (Taisho Founded the Kiitsu Association
1)
1913 Founded and became Vice President (later, President) of the Japan Association
for the Prevention of Tuberculosis
1919 Founded and became Vice President of the Kyocho Kai [Cooperation Society]
1923 Founded and became Vice President of the post-Great Kanto Earthquake
Benevolent Association
1924 Principal of Tokyo Jogakkan [Tokyo Schools for Women]
1927 (Showa Founded and became Chairman of the Japan International Children’s Friendship
2) Society
1928 Founded Tokyo Women’s Higher Commercial School
1929 Founded and became Chairman of the Central Association for Welfare of the
Blind
1930 Adviser of the Overseas Colonial School
programs and education. He created a model for the expansion and reproduction of wealth
and practiced the redistribution of wealth back into society. While he was a private
businessman he had his own views and influenced economic policy. These activities can
be described as the forerunners of the activities of “social entrepreneurs” who are in great
demand these days: “entrepreneurs who achieve social innovation by solving problems and
creating new mechanisms through ground-breaking innovations” (Economic and Social
Research Institute [ESRI], Cabinet Office, Government of Japan, “Social Innovation Case-
book 2008”)5
As a Business Leader
Table 3 shows a selection of Shibusawa’s activities as a business leader from the

“Chronology” on the Shibusawa Eiichi Memorial Foundation’s website.
The historian Miyamoto asked: “Why did Meiji Japan need a business leader like
Shibusawa?” As Japan at the time needed two things in particular—“the ability to
accurately gather economic intelligence” and “an organizational structure capable of
5
Op. cit., Shimada, M. (2011), p. iii.
As a Private-Sector Diplomat 79
Table 3 Eiichi Shibusawa’s activities as a business leader

1875 (Meiji Founded Commercial Law School
8)
1876 President of the Tokyo Chamber of Commerce and Industry
1877 Founded Takuzen-kai (later, Chairman of the Tokyo Bankers’ Meeting House)
1878 Founded and became Chairman of the Tokyo Commercial Law Commission (later,
Chairman of the Tokyo Chamber of Commerce and Industry)
1891 Founded and became Committee Chairman of the Tokyo Clearing House
1910 Founded and became Vice Chairman of the Production Research Council, a
government advisory body
1913 Founded and became Chairman of the Japan Business Association
utilizing new technology and knowledge”—Miyamoto offered the following

analysis:
Those who wanted to start a new business were expected to be first and foremost well-
informed and strong coordinators. Contacts with politicians and foreigners with useful
information, broad credibility among businessmen, and the ability to coordinate different
interest groups were needed. However, these entrepreneurial skills were a scarce resource,
concentrated in a limited number of persons in a given period and region. In Kyoto, the role
was filled by Gentaro Tanaka, in Nagoya by Masaka Okuda, in Osaka by Tomoatsu Godai,
and after his death by Denzaburo Fujita, Ichibei Tanaka, and Michio Doi, while in Tokyo the
role was [singlehandedly] filled by Eiichi Shibusawa for a long period of time through Meiji,
Taisho and Showa.6
As a Private-Sector Diplomat
Table 4 shows a selection of Shibusawa’s activities as a private-sector diplomat

(from the “Chronology” on the Shibusawa Eiichi Memorial Foundation’s website).
Many were undertaken at the request of the government.
The historian Masato Kimura, taking the view that Shibusawa’s private-sector
diplomacy was underpinned by his commercial ethics, stated:
Although Shibusawa kept saying he was an amateur at diplomacy, he believed that it was
part of commercial ethics for private-sector business leaders to get involved. In other words,
he accepted the government’s request because he believed that private-sector diplomacy was
part of a broader, active commercial ethics that would facilitate entrepreneurial activities in a
global society that extended beyond national borders. After his 60th birthday, Shibusawa
6
See Miyamoto, M. (2014). Mierute niyoru shihonshugi: Kabushikigaisha-seido, zaikaijin,
Shibusawa Eiichi (Capitalism by ‘visible hand’: Joint stock company system, businesspersons,
and Eiichi Shibusawa). In op.cit., T. Kikkawa, & P. Fridenson (Eds.) Eiichi Shibusawa in global
capitalism: Gappon capitalism and morals (pp. 109–110).
Table 4 Eiichi Shibusawa’s activities as a private-sector diplomat

1879 General Ulysses S. Grant (formerly 18th President of the United States) Welcome
Party (Chairman of the Tokyo Committee to Welcome General Grant)
1902 Travelled to Europe and the United States with his wife Kaneko and met with
President Theodore Roosevelt
1908 Invited a group of businessmen from the Pacific Coast of the United States
1909 Organized a business delegation to the United States and led the trip. Met with
President William Howard Taft
1912 (Taisho Founded and became Honorary Chairman of the New York Japan Society
1) Cooperation Association
1914 Visited China to establish partnerships between Japanese and Chinese business
circles
1915 Travelled to the United States for the Panama Canal Opening Exhibition. Met
with President Woodrow Wilson
1916 The Committee on U.S.-Japan Relations is formed. Became a member of the
Standing Committee
1917 Founded the Japan-US Society. Becomes its Honorary Vice President
1920 Founding Chairman of the League of Nations Association of Japan
1921 Travelled to the United States to address anti-Japanese sentiments and policies.
Met with President Warren G. Harding
1924 The Maison Franco-Japonaise opens. Became President of the Board of Directors
1926 Founded and became Chairman of the Board of Trustees of the Japan Institute of
Pacific Relations
1927 (Showa Hosted a welcome party for a Japanese-American goodwill doll exchange
2)
visited the United States four times, Europe once, China once, Korea several times, and
actively worked towards improving these countries’ relations with Japan.7
Gapponshugi and Its Significance Today
The economic philosophy that underpinned Shibusawa’s success as a private entre-

preneur was Gapponshugi, or the principle of collaboration. It refers to “the idea of
bringing together the human and financial capital best suited to pursuing the public
good and promoting business.”8
Teiji Kenjo, who wrote a critical biography of Shibusawa, states that
“Gapponshugi was positioned at the core in the formation of ‘joint-stock
7
Kimura, M. (2014). Gurobaru shakai ni okeru Shibusawa Eiichi no shogyo dotokukan (Eiichi
Shibusawa’s commercial and moral views in the global community). In op.cit., T. Kikkawa, &
P. Fridenson (Eds.) Eiichi Shibusawa in global capitalism: Gappon capitalism and morals (p. 175).
8
Kikkawa, T. (2017). Introduction. In In op.cit., P. Fridenson, & T. Kikkawa, (Eds.) Ethical
capitalism: Shibusawa Eiichi and business leadership in global perspective (p. 3).
Gapponshugi and Its Significance Today 81
companies’”,9 thus linking it to the joint-stock company system that Shibusawa

introduced to Japan. Shibusawa’s Gapponshugi is therefore usually understood to
highlight the financial aspect of mobilizing social funds.
However for a late developer nation to accomplish industrialization and achieve
growth as an emerging economy, it is crucial to secure human and financial capital.
In fact, as a recent study has revealed, “Shibusawa Eiichi’s principle of Gapponshugi
was a method of developing human as well as financial resources”.10
9
Kenjo, T. (2008). Hyoden Nihon no keizaishiso: Shibusawa Eiichi, dotoku to keizai no aida (A
critical biography on Japanese economic thought: Eiichi Shibusawa, between moral and econ-
omy). Tokyo: Nihon Keizai Hyouronsha.
10
Kikkawa, T. (2013). Shibusawa Eiichi no hitozukuri ni chumoku suru riyu: Kohatsukoku
kogyoka heno shisa to shihonshugi-kan no saikochiku (Why we pay attention to Eiichi Shibusawa’s
human resources development: Suggestions for the industrialization of developing countries and
reconstructing views of capitalism). In T. Kikkawa, M. Shimada, & K. Tanaka (Eds.), Shibuzawa
Eiichi to hitozukuri (Eiichi Shibusawa and his human resources development) (p. 1). Tokyo:
Eiichi Shibusawa (left) meeting with Chiang Kai-shek, leader of the Nationalist Party of the
Republic of China, in 1927. (Photo courtesy of Jiji Press)
In 2006, the Shibusawa Eiichi Memorial Foundation published the results of a

survey on Shibusawa Eiichi’s individual donations throughout his life, categorized
by fields. It showed that “education and academic” led the list in terms of both
amount and number of donations (approximately 35% in value and 30% in num-
ber).11 Shibusawa believed that fostering and securing human capital was essential
to the formation of modern Japan, devoting a great deal of effort to the cause.
In “Conclusion,” I plan to propose an overhaul of Japanese-style management
through a transition to a “new Japanese-style management” that places more empha-
sis on long-term employment and less on the seniority system. The philosophy of
this restructuring has much in common with Shibusawa’s Gapponshugi that greatly
values human capital. The new Japanese-style of management emphasizes long-term
11
Ibid., pp. 1–2.
Gapponshugi and Its Significance Today 83
employment, providing employees with a sense of security, based on Shibusawa’s

people-centric capitalism. On the other hand, new Japanese-style management, by
rejecting the seniority system and adopting meritocracy, encourages competition
among employees, also consistent with Shibusawa’s emphasis on utilizing an open
market mechanism.
Furthermore, the long-term perspective of new Japanese-style management is in
line with Shibusawa’s position that often required a long-term commitment from
shareholders in the companies they invested in. Thus, Shibusawa’s principle of
Gapponshugi overlaps with conventional capitalist values in the following ways:
1. It aimed for an open economic system that utilized market mechanisms in contrast
to the closed economic system formed by zaibatsu.
2. It limited the role of government and was oriented towards private-sector-led
economic management.
However, it differs from conventional capitalist values in some areas:
1. It asked stakeholders, including shareholders, to make a long-term commitment.
2. It emphasized a moral perspective when uniting stakeholders (shareholders and
management), discouraging self-serving behavior.
3. It called for a certain level of order in corporate competition.
If we can systemically make use of these unconventional capitalist values, it might
be possible to create a new capitalist value to replace the one that is dominant today,
which can be summarized as the “worship of money-making.”12
parts of it.
12
For details see Kikkawa, T. (2017). The reorganization of capitalism and the ethical capitalism of
Shibusawa Eiichi. In op.cit., Fridenson, P., & Kikkawa, T. (Eds.). Ethical capitalism: Shibusawa
Eiichi and business leadership in global perspective (chap. 8).
Discussion Point 2: How Did Japan’s
Economy Manage to Take Off So Early?
Conditions That Enabled the First
Successful Industrialization Case Among
Latecomer Nations
Abstract This section analyzes the factors that enabled Japan to be the first “late-
comer” nation to successfully industrialize. It emphasizes the synergy between three
different types of managers—owner-managers, salaried managers, and investor-
managers—working together to advance the Japanese economy and achieve break-
through innovations.
General Requirements for Latecomer Nations’

Industrialization
Japan’s rapid industrialization process from the Meiji period onward can be regarded
as a typical example of latecomer industrialization in world history. As Alexander
Gerschenkron has argued, such latecomer countries’ achievement may have been
relatively rapid through the use of borrowed technology and capital already accu-
mulated by developed countries. but the lack of capital, markets, skilled labor,
technicians, and entrepreneurship necessitate coordination between the government
and banks, as well as certain ideologies.1 In Japan specifically, the government,
financial institutions, trading companies, shipping companies, and others played an
important role in the process of industrialization, as did the ideology of “business
management nationalism.”2
The emergence of numerous government-owned factories and mines in the period
immediately after the Meiji Restoration as part of the “industrial development
policy,” and the implementation of a series of industrial promotion policies through
“Sino-Japanese Postwar Management” and “Russo-Japanese Postwar Manage-
ment,” are evidence that the government played a major role in Japan’s industrial-
ization. However, the government’s role should not be overemphasized. Many of the
1
Gerschenkron, A. (1962). Economic backwardness in historical perspective, Cambridge, MA: The
Belknap Press of Harvard University Press.
2
Morikawa, H. (1973). Nihon-gata keiei no genryu: Keiei nashonarizumu no kigyorinen (The roots
of Japanese-style management: Corporate philosophy of management nationalism). Tokyo: Toyo
Keizai Inc.
© Kreab K.K. 2023 85

86 Discussion Point 2: How Did Japan’s Economy Manage to Take Off So Early?. . .
government-run factories and mines failed to flourish, their full development com-
mencing only after they were sold off to the private sector,3 starting in 1880 (Meiji
13), and reconstituted as private companies. The shipping, shipbuilding, and steel
industries that were the target of the “Sino-Japanese Postwar Management” and
“Russo-Japanese Postwar Management” programs, thrived in the private sector even
as they received political support. For example, the opening of the government-run
Yawata Steel Works in 1901 was followed by the establishment of Sumitomo Steel
Casting in 1901; the start of flat furnace steelmaking at Kamaishi Iron Works in
1903; the establishment of Kobe Steel Works in 1905; the construction of a steel
forging plant at Kawasaki Dockyard in 1906; the establishment of Nippon Steel
Works in 1907; and other active developments in private steel manufacturing.
Thus, Japan’s industrialization process was not necessarily government-led, but
rather progressed in a mutually complementary manner between the government and
the private sector. Referring to Gerschenkron’s argument, Keiichiro Nakagawa
emphasizes the important role played by trade-related “organized entrepreneurial
activities” in Japan’s industrialization process.4 In order for the cotton and silk
industries to become internationally competitive, trading companies,5 shipping
companies, banks, and marine insurance companies made significant contributions,
serving as “the infrastructure of modern industry.”6 Gershenkron’s and Nakagawa’s
arguments relate to the prerequisites for industrialization that are applicable not only
to Japan but also to other late starter nations in general. However, discussions on
Japan’s industrialization should go beyond identifying prerequisites for industriali-
zation in late developers, as Japan was the first country outside of Europe and the
United States to achieve industrialization.
3
For the privatization of governmental businesses, see Kobayashi, M. (1977). Nihon no kogyoka to
kangyoharaisage (Japan’s industrialization and sale of government projects). Tokyo: Toyo
Keizai Inc.
4
Nakagawa, K. (1967). Nihon no kogyoka katei ni okeru soshikika sareta kigyosha katsudo
(Organized entrepreneurial activity in the process of Japan’s industrialization). Keieishigaku
(Japan Business History Review), 2(3).
5
For development of business by Japanese trading companies, see Yamazaki, H. (1987). Nihon
shosha-shi no ronri (The logic of the history of Japanese trading companies). In The University of
Tokyo, Shakaigaku kenkyu (Journal of Social Science), 39(4).
6
See Tatsuki, M. (1995). Kogyoka to shosha, kaiun, kinyu (Industrialization and trading company,
marine transport, and finance). In M. Miyamoto, & T. Abe (Eds.), Nihon keieishi 2: Keiei kakushin
to kogyoka (Japanese business history 2: Management innovation and industrialization). Tokyo:
Iwanami Shoten Publishers.
Interplay Among the Three Types of Managers 87
Unique Conditions That Made Japan the First Case

of Successful Industrialization Among Latecomer Nations
What were the unique conditions that enabled Japan to achieve industrialization
ahead of other late developers? As just noted, Japan’s achievement can be explained
by the fact that “economic development was not necessarily government-led;
instead, government and private enterprises complemented each other.”
How, then, did Japan’s private sector manage to be more active than those in
other less developed countries? By effectively utilizing scarce resources such as
human and financial capital. To summarize:
1. In terms of human capital, owner-managers enabled salaried managers to play an
active role, with educational support of investor-managers.
2. In terms of financial capital, salaried managers used owner-managers’ financial
resources to pursue industrialization, along with investor-managers mobilizing
funds from the public at an early stage among the public through joint-stock
companies.
Interplay Among the Three Types of Managers
The case studies in the second half of Part I illustrate that as the scale of business
grew, and diversification progressed, owner-managers could no longer carry out
business management on their own and needed the assistance of salaried managers.
A typical example: the active appointment of salaried managers by Yataro and
Yanosuke Iwasaki, who formed the Mitsubishi zaibatsu, becoming active promoters
of industrialization. Moreover, some owner-managers (e.g., Soichiro Asano and
Ichibei Furukawa) without sufficient fund-raising capacity established joint stock
companies or used bank loans at an early stage, relying on investor-managers such as
Eiichi Shibusawa, the president of Dai-Ichi Bank. The latter also educated business-
men and helped establish and develop many institutions of higher learning. For
instance, graduates of Tokyo Higher Commercial School joined many large corpo-
rations, including Mitsui & Co., thriving as salaried managers.
In addition, owner-managers sometimes complemented their lack of management
resources through mutual alliances such as that between Zenjiro Yasuda, who
formed a financial zaibatsu, and Soichiro Asano, who built an industrial zaibatsu.
In sum, by working together in several ways the three types of businessmen—
owner-managers, salaried managers, and investor-managers—demonstrably pushed
Japan’s industrialization process forward.
88 Discussion Point 2: How Did Japan’s Economy Manage to Take Off So Early?. . .
Early Take-Off as the Outcome of Breakthrough Innovations
The first of the three questions presented in the Introduction was: “How did the
Japanese economy manage to take off so early and establish a trajectory of growth?”
In the closing of Part I, which covers the Edo period to the post Russo-Japanese War
period, the answer emerges: “Japan’s early take-off was the outcome of break-
through innovations.”
As seen earlier, Zen’emon Konoike, Takatoshi Mitsui, and Genzaemon Nakai
developed innovative business models during the Edo period. Though their business
innovations might not necessarily be considered breakthrough innovations when
evaluated from a global perspective, given that Japan was cut off at the time from the
rest of the world by its isolationist policy, Japanese innovation can be considered sui
generis. Thus, it is fair to say that these leaders were among the world’s first
breakthrough innovators.
Their success, in turn, highlighted the “novelties” of the Edo period—a feudal
society with a well-developed market economy whose pre-industrial “novelties”
served as an important prerequisite for the Japanese economy’s early takeoff, a
period represented by six innovative businessmen: Hikojiro Nakamigawa, a salaried
manager; Yataro Iwasaki, Yanosuke Iwasaki, Zenjiro Yasuda, and Soichiro Asano,
owner-managers; and Eiichi Shibusawa, an investor-manager—all active from the
late Edo period to the post-Russo-Japanese War period.
True, many of their aforementioned business innovations cannot be called
“world’s firsts,” but rather were incremental innovations. However, the unique
system of their mutually facilitative collaboration became the driving force turning
Japan into the first industrialized nation outside of Europe and the United States. In
this sense, the entrepreneurs discussed in the latter half of Part I can be regarded as
the embodiment of breakthrough innovations of historical, global significance,
contributing to the world’s “first latecomer industrialization”—truly an “Era of
Breakthrough Innovations.”
With the individual breakthrough innovations of the Edo period as a prerequisite,
the comprehensive breakthrough innovations of the period from the opening of ports
at the end of the Edo period to the end of the Russo-Japanese War directly triggered
the first industrialization in Japan among the least developed countries. This is why
we called the period of Part I the “Era of Breakthrough Innovation”.
Early Take-Off as the Outcome of Breakthrough Innovations 89
parts of it.
Part II
The Era of Incremental Innovation
Overview 3: World War I to the 1980s
Abstract This section reviews the long period of steady economic growth resulting
from Japan’s incremental innovation system based on Japanese styles of manage-
ment. Cases of several Japanese entrepreneurs are analyzed, each with a different
approach to innovation.
World War I and Economic Turmoil
This section covers the period from World War I to the 1980s, when the Japanese
economy enjoyed a prolonged period of relatively high growth by global standards.
Ten case studies are presented, examining fourteen innovative entrepreneurs who
made primarily incremental innovations as well as actual breakthroughs.
Japan’s industrial revolution reached completion just after the Russo-Japanese
War (1904–1905), with the prolonged postwar depression beginning in 1907 (Meiji
40). Despite the “intermediate economic boom” around 1910, spurred by hydroelec-
tric expansion in the electric power sector, the broader Japanese economy turned
sluggish. As the balance-of-payments crisis worsened, Japan’s economy came to a
standstill.
World War I, from 1914 to 1918 (Taisho 3–7), changed all this. Although Japan
joined the Allied powers (the U.K., France, and Russia), because of geographical
distance from the war zone, the Japanese referred to World War I as the “Great War
in Europe.” Exports grew rapidly. Japan supplied munitions and foodstuffs to the
Allied countries in Europe, increased exports to Asian countries with emerging
business opportunities left by the withdrawal of European powers, and exported
raw silk to the U.S., which was experiencing an economic boom. Japan was able to
improve its balance of payments after achieving mild success in domestic production
of heavy and chemical industrial products previously supplied by Europe.
When reconstruction demand arose during and immediately after World War I, in
1919, Japan’s economic growth rate surged to an unprecedented level, leading to the
“World War I boom” and “postwar boom.” Of note, the gold standard ceased to
function globally due to World War I; Japan also prohibited gold exports in 1917 and
left the gold standard.
© Kreab K.K. 2023 93

94 Overview 3: World War I to the 1980s
These booms did not last long, however, as they were a result of temporary
increase in demand spurred by wartime and postwar reconstruction. The situation
turned darker in the wake of the 1920 recession, with the Japanese economy entering
a period dubbed “chronic recession”—experiencing not only recession, but also a
series of further setbacks: the Great Kanto Earthquake of 1923, the financial crisis of
1927 (Showa 2), and the Showa Depression of 1929–1931.
As Japan’s balance of payments worsened once again, only in January 1930 did it
finally return to the gold standard with Finance Minister Junnosuke Inoue’s decisive
lifting of the gold export ban and implementation of austerity measures (the so-called
“gold release”) during the Showa Depression.
The Showa Depression, connected to the Great Depression that began in 1929 in
the U.S., was the worst economic recession in Japan’s modern history, with the
country’s nominal gross national product posting a substantial contraction in
1930–1931.
The Japanese Economy Gets on a Long-Term Growth Track
Nevertheless, from a global perspective, Japan’s economic growth during the

“chronic recession” of the 1920s was comparatively not all that bad. Its average
economic growth from the 1910s to the 1920s, both in gross and per capita value,
was slightly higher than that of the U.S, which was then the leader of global
economic development.1 This relative strength in comparison to the global average,
even as Japan was entering a recessionary phase, can be attributed to expansion of
the domestic market, brought about by increasing urbanization and electrification
during this period.
In the evaluation of historian Ryoichi Miwa, “the scale of the Japanese economy
moved to a higher level after World War I.” He adds, “In the 1920s, Japan began its
shift toward a mass consumer society while changing its consumption habits toward
those of Europe.2” This trend beginning in the 1920s—with Japan’s economic
growth rate exceeding those of the U.S., U.K., and Germany—continued for a
long period, with a brief interruption around World War II. The trend continued
until reaching a halt in the 1990s.3
1
See Ando, Y. (1975). Kindai Nihon keizaishi yoran dainihan (The second edition of an outline of
the economic history of modern Japan) (p. 24). Tokyo: University of Tokyo Press.
2
Miwa, R. (1993). Op. cit., An outline of Japanese modern economic history (p. 100).
3
Op. cit. Ando, Y. (1975), p. 24.
The Years Leading to World War II 95
The Years Leading to World War II
Pre-World War II Japan emerged from the Great Depression (Showa Depression)
ahead of other developed Western countries. Its economic recovery was spurred by
the reimposition of a ban on gold exports in December 1931 by Prime Minister
Tsuyoshi Inukai’s administration, a move that pulled Japan away from the gold
standard and toward a managed currency system.
Under the managed currency system, Finance Minister Korekiyo Takahashi’s
economic policies focused on creation of effective demand, successfully stimulating
economic recovery. (These policies highlighting demand were later recognized as
predecessors of John M. Keynes theory.) In addition, the depreciation of the yen that
resulted from reimposition of the gold export ban, combined with the tariff revision
of 1932, boosted exports and blocked imports. By the mid-1930s, Japan’s heavy
industry had achieved an “internal cyclical expansion of production,4” driven by
lessened import pressure.
The Second World War (1939–1945) cast a heavy shadow over the Japanese
economy. During the war, Japan’s economy was subjected to state control, with
freedom of business activity severely curtailed. Economic controls began with the
enactment of the 1938 National Mobilization Law and continued even after the war
until about 1952, the end of Occupation.
With defeat in August 1945, Japan lost its overseas colonies of Korea, Taiwan,
and South Sakhalin. In addition, major Japanese cities had been reduced to rubble by
U.S. air raids. For some time after the war’s end, life in Japan was precarious,
evidenced by severe food shortages. During this period Japan was under occupation
of the Allied Powers, led by the United States. The economic reforms implemented
under the Allied occupation, such as dismantling of zaibatsu, prohibition of monop-
olies, labor reform (establishment of labor rights), and farmland reform, had a major
impact on Japan’s economy and on Japanese companies.
The reforms, however, turned out to be important prerequisites for the growth of
Japan’s postwar companies. Occupation era reforms led to the advancement of
salaried managers and the rejuvenation of management in general with labor unions
securing a solid legal basis, and discrimination based on status between office and
factory workers banned. The reforms also marked the beginning of fierce competi-
tion among oligopolies in major industries and expansion of the domestic market
through growth of personal consumption.
The Allied Occupation of Japan ended in 1952. Japan’s industrial production, real
gross national product (GNP), and real personal consumption had already surpassed
their prewar highs in 1951, while real per capita GNP and real per capita personal
consumption bettered their prewar highs in 1953.
4
See Hashimoto, J. (1984). Daikyokoki no Nihon shihonshugi (Japan’s capitalism during the great
depression). Tokyo: University of Tokyo Press.
96 Overview 3: World War I to the 1980s
From High Growth to Stable Growth
As just noted, the Japanese economy returned to pre-World War II levels in both
production and consumption between 1951 and 1953. Henceforth, from the
mid-1950s to the early 1970s it enjoyed a period of rapid growth unprecedented in
world history. The average annual nominal economic growth rate for the 15-year
period (1956–1970) was 6.2% in the U.S. and 10.3% in West Germany; and between
1956 and 1969 it was 7.2% in France, 8.1% in the U.K., 9.4% in Italy—but in Japan
it reached 15.1%! In terms of real GNP, the Japanese economy grew at an annual rate
of 10.4% over those 15 years, with the economy expanding 440%.5
Japan’s major industries strengthened their global competitive edge in the
mid-1960s at the height of the country’s rapid economic growth. This growing
strength resulted from the transition to an open economy through trade and capital
liberalization. Movement to an open economy was also accompanied by growing
Japanese concerns over the threat posed by foreign goods and capital, and sometimes
termed “the second arrival of the Black Ship [Commodore Matthew C. Perry].”
Despite such concerns, however, through large-scale investments and concerted
labor-management efforts united by a sense of crisis, Japanese labor productivity
rose at a rate surpassing that of advanced Western countries, strengthening Japanese
corporate competitiveness. As a result, Japan’s balance of trade, in deficit for almost
the entire postwar period, turned to surplus in 1964.
Japan’s high growth rate came to an end during the first oil crisis of 1973–1974.
However, even after the crisis, Japan’s economic growth, although slower than in
earlier periods, remained higher through the 1980s than that of advanced Western
countries. 6 Thus, Japan’s economic growth from the mid-1970s to the end of the
1980s is better seen as “stable” rather than “slow.”
The economy achieved stable growth even after the first oil crisis because
Japanese companies, supported by good labor-management relations and amicable
inter-company relations, effectively: (1) developed management strategies based on
a long-term perspective; (2) developed products that met market needs such as
energy conservation; and (3) thoroughly streamlined and upgraded production
processes. As a result, when the pace of economic growth declined internationally
in the post-oil crisis period, global attention to Japanese companies increased
rapidly. The phrase “Japan as number one” began to gain currency7 in the context
of Japanese companies successfully overcoming the oil crisis.
5
See Kikkawa, T. (2007). Keizai seicho to Nihon-gata kigyokeiei: Kodo seicho kara
nijuisseikishoto madeno kigyo keiei (Economic growth and Japanese-style corporate management:
Corporate management from rapid growth to the early 21st century). In op.cit., M. Miyamoto,
T. Abe, M. Udagawa, M. Sawai, & T. Kikkawa (Eds.). The new edition of Japanese business
history: From the Edo period to the 21st century (pp. 297–298).
6
Ibid., pp. 300–303.
7
An example is Vogel, E. F. (1979). Japan as number one: Lessons for America. Cambridge, MA:
Harvard University Press.
Incremental Technological Innovation and “Japanese Style Management” 97
Incremental Technological Innovation and “Japanese Style

Management”
As the era of rapid economic growth ended, the idea that corporations belonged to
their employees was taking hold in major Japanese companies. Employee power was
implemented through a mechanism to achieve incremental (cumulative and contin-
uous) technological innovation from the production floor, supported by cooperative
labor-management relations. This system was the fruit of so-called Japanese-style
management that “aims to maximize employee profits based on cooperative labor-
management relations.”
From the mid-1950s through the 1980s Japanese managers implementing Japa-
nese-style management repeatedly made growth-oriented decisions, helping the
economy achieve relatively high growth compared to other economies. Companies
achieved long-term growth, leading to a continuous rise in stock prices and
improved working conditions, thereby successfully aligning shareholder and
employee interests.
Part II covers a lengthy period. The innovative entrepreneurs presented include
diverse leaders in urbanization and electrification (Ichizo Kobayashi and
Yasuzaemon Matsunaga), exceptional breakthrough innovators (Saburosuke Suzuki
II and Kiichiro Toyoda), those who attempted overseas expansion before World War
II (Shitagau Noguchi, Yoshisuke Aikawa, and Sazo Idemitsu), others who led the
rapid economic growth (Yataro Nishiyama and Konosuke Matsushita), challengers
to the global market in the postwar period (Masaru Ibuka, Akio Morita, Soichiro
Honda, and Takeo Fujisawa), and one who warned of an upcoming dark era
(Toshio Doko).
parts of it.
Case 8 Ichizo Kobayashi: A Leader
in Urbanization Creates a New Industry
Abstract This chapter introduces Ichizo Kobayashi, a leader in urbanization and

manager of Hankyu Railway, who not only managed the company but also devel-
oped suburban residential areas along the railway line and developed the Yurakucho
entertainment district by establishing Toho Cinemas.
Urbanization and Electrification Pave the Way for a Mass

Consumer Society
As seen, World War I drastically altered the Japanese economy. The biggest change
was rapid progress in urbanization and electrification, improving the standard of
living and giving rise to a mass consumer society—a growth track ultimately leading
to prosperity fully realized after World War II.
The leaders in that transition were Ichizo Kobayashi in urbanization1 and
Yasuzaemon Matsunaga in electrification. Kobayashi, the manager of Hankyu
Railway, not only managed the company but also pioneered a new field of urban,
tertiary industry by developing suburban residential areas along the railway line;
opening department stores at rail terminals; founding the Takarazuka Revue and
developing the Yurakucho entertainment district by establishing Toho Cinemas.
Matsunaga, who practiced scientific electric power management at Kyushu Electric
Railway and Toho Electric Power Company, played a leading role in the creation of
Japan’s postwar electricity system with nine major electric power companies featur-
ing private ownership and management. Matsunaga was dubbed the “demon of
electric power.”
1
For details concerning Kobayashi Ichizo, see Oikawa, Y. (2017). Nihon no kigyoka 5: Kobayashi
Ichizo, toshigata daisanji sangyo no senkuteki sozosha (Japanese entrepreneur 5: Ichizo
Kobayashi, Pioneering creator of urban-type tertiary industry). Kyoto: PHP Institute, Inc.
© Kreab K.K. 2023 99

100 Case 8 Ichizo Kobayashi: A Leader in Urbanization Creates a New Industry
Housing Shortages in Osaka
Ichizo Kobayashi was born in the town of Nirasaki, Yamanashi Prefecture, in 1873
(Meiji 6). After graduating from Keio Gijuku, Kobayashi joined Mitsui Bank in
1893. He was among those Keio graduates recruited by Hikojiro Nakamigawa to
join the Mitsui family business, becoming one of prewar Japan’s leading salaried
managers.
After leaving Mitsui Bank in 1907, Ichizo became involved in the establishment
of the Minoh-Arima Electric Railway (later known as Hankyu Railway) near Osaka.
Urbanization is a business opportunity, first manifesting itself in the electric railway
and real estate business (suburban commercial and residential housing). He became a
leader of urbanization by linking the two businesses.
Two examples of such interconnectivity come to mind: first, Ichizo’s sale of
housing land in the Ikeda-Muromachi residential area along the Minoh-Arima
Electric Railway line; second, development of Tamagawadai (Denenchofu) by
Denen Toshi Co. that later merged with Meguro-Kamata Electric Railway.
A notable time gap is evident between these two cases of real estate development.
Whereas the Ikeda-Muromachi residential area was first put up for sale in 1910, the
Denen Toshi Co. was established only in 1918 (Taisho 7). Understanding the origins
of a railway company’s involvement in the real estate business, then, entails first
studying the case of the Ikeda-Muromachi residential area in Osaka: “In contrast to
the relatively small land area of Osaka City, the city’s enormous expansion and the
large number of towns and villages in the suburbs led to the early development of
suburban transportation systems. Osaka City’s suburban housing was perhaps the
earliest to develop in Japan2”—even more than in Tokyo suburbs during the late
Meiji to the early Taisho era.
Osaka’s population increased rapidly after the Russo-Japanese War,3 with the rate
of increase comparable to that of Tokyo from 1912 to 1917.4 As of 1916, however,
Osaka, with about two-thirds the population of Tokyo, had less than half its land
area. The number of housing units and population per 1000 tsubo (1 tsubo = about
3.3 square meters) of residential land in Osaka (5137 units, 24,384 persons) was
higher than those in Tokyo (4833 units, 18,321 persons).5 A November 1918
newspaper article illustrates this point: “Generally speaking, rents are much higher
2
Toshi-seikatsu no fuan (16) Osaka-shi no jyutaku mondai (Anxiety in urban life (16): Housing
issues in Osaka City). Osaka jiji shinpo (Osaka daily newspaper), February 3, 1919.
3
See Nankaido General Research Institute (Ed.) (1985). Nankai ensen hyakunen-shi (One hundred-
year history of Area along Nankai Electric Railway) (p. 121). Nankai Electric Railway Corporation.
4
From 1912 to 1917, the population in Tokyo increased 1.169-fold from 2,009,980 to 2,349,830,
and the population of Osaka 1.170-fold from 1,331,994 to 1,557,986. Toshi-seikatsu no fuan
(2) Osaka-shi no jyutaku mondai (Anxiety in urban life (2): Housing issues in Osaka City).
Osaka jiji shinpo (Osaka daily newspaper), January 21, 1919.
5
See Toshi-seikatsu no fuan (4) Osaka-shi no jyutaku mondai (Anxiety in urban life (4): Housing
issues in Osaka City). Osaka jiji shinpo (Osaka daily newspaper), January 23, 1919.
Housing Shortages in Osaka 101
in Osaka than in Tokyo. Perhaps Osaka and Kobe are unmatched in the country in
terms of high rents.6”
From October 30 to November 5, 1918, the Osaka Mainichi Shimbun (Osaka
daily newspaper) published a series titled “Osaka in Housing Crisis (1)~(5),” with
the following subheadings:
(1)
No houses available for rent in Osaka
The number of vacant houses in the entire city is less than 400
Even worse, the only available ones are uninhabitable shabby houses
New construction of merely 1000 or 2000 units will not solve the problem
Rents are skyrocketing
(2)
Price increase of 10–50% in the Chikko area
Other wards show a similar trend
(3)
The high cost of rent in Osaka is unmatched in the country
The tyranny of housing feudalism
The small tenants are suffering most
(4)
Rent at the outskirts is absurdly high
The landlords’ personalities are different between the outskirts and the [central]
senba district
(5)
Housing difficulties for low-wage workers
Need for public housing, charitable organizations, and public building associations
Urgent need to install rapid transit trains
Interestingly, the newspaper article concluded: “Citizens will not be spared the
misery of housing shortages unless high-speed transportation is established to
quickly and inexpensively transport them from the urban center to the relatively
remote suburbs,” and emphasized the “urgent need for installation of a high-speed
railway.7” Clearly, Osaka City’s severe housing shortage fueled demand for new
housing in the surrounding suburbs, especially close to the electric railway lines.8
In contrast, demand for housing in Tokyo during the 1910s was basically
confined to the areas along streetcar lines and provincial rail lines near the urban
6
Jutakunan no Osaka (3) (Osaka in Housing Crisis (3)). Osaka mainichi shimbun (Osaka daily
newspaper), November 3, 1918.
7
Jutakunan no Osaka (5) (Osaka in Housing Crisis (5)). Osaka mainichi shimbun (Osaka daily
newspaper), November 5, 1918.
8
See Kogai-densha kara mita Osaka (7) (Osaka viewed from suburban trains (7)). Osaka mainichi
shimbun (Osaka daily newspaper), December 21, 1915.
center. It was not until after the Great Kanto Earthquake of 1923 that the demand for
housing spilled over to suburban areas along private railway lines.9
Minoh-Arima Electric Railway Enters the Real Estate

Business
The Minoh-Arima Electric Railway (MAER), led by managing director Ichizo

Kobayashi, was the first case of real estate businesses run by electric railway
companies in Japan. This railway company was founded in October 1907, changing
its name to Hanshin Express Electric Railway (Hankyu Railway) in February 1918.
The establishment of MAER, with the right to build a railroad connecting Osaka
(Umeda), Minoh, Arima, Takarazuka, and Nishinomiya, was thought problematic.
There was difficulty in underwriting securities owing to the post-Russo-Japanese
recession and a low number of expected passengers given the small population along
the rail line. To overcome these challenges, Ichizo Kobayashi, assigned to manage
the company, deemed it necessary to combine the railroad business with the housing
business along the railroad line. According to Kobayashi’s autobiography, “Itsuo
Jijoden” (Itsuo=Kobayashi’s pen name, Jijoden=autobiography) (Sangyo Keizai
Shimbun, 1953), his thoughts on the establishment of MAER were as follows:
I just know that it will work out – This company is difficult to set up and has zero credibility.
It is expected that the company will be dissolved sooner or later. Even if you manage to
devise a way to set up a company, you will be ridiculed by the public along the way as if it
will not work in the end. Fortunately, there are many ideal residential areas along the railway
line – if one were to buy the most suitable land along the railway line for one yen per tsubo,
and one were to buy 500,000 tsubo, one would earn a profit of 2.50 yen per tsubo after
opening for business, and one would earn 125,000 yen by selling 50,000 tsubo every six
months. Of course, I do not know whether 50,000 tsubo will sell or not, but I think it will be
worth about 5 yen per tsubo once the train line opens. I think it would be a good idea to
consider such a side business from the onset, to reassure shareholders if the rail business does
not pan out (pp. 151–152).
When Ichizo Kobayashi was elected as the managing director of MAER at the
company’s inaugural meeting in October 1907, he immediately put the above
ideas into action. In a pamphlet entitled “The Most Promising Train” distributed
by MAER in October 1908 prior to the railway line’s opening, Kobayashi wrote:
“The land to be owned by the company is about 200,000 tsubo in an area with a
suitable climate and superb scenery, only 15 to 20 minutes away from Umeda (center
of Osaka). The idea is to set up stations here and develop the land to increase the
9
See Toshi no bocho to kogai dentestsu (1)~(10) (The expansion of cities and suburban railway
lines (1) to (10)). Kokumin shimbun (National newspaper), October 1 to 13, 1926. Also, Tokyu
Land Corporation, Machizukuri 50 nen [50 Years of Urban Planning]. Tokyo: Tokyu Land
Corporation, pp. 30–31.
Minoh-Arima Electric Railway Enters the Real Estate Business 103
number of passengers along the route, and to profit from the land at the same time.10”
In addition, a pamphlet titled “What kind of land should you choose and what kind of
house should you live in? (a guide to residential areas)” published by the company in
the fall of 1909, also before the opening of the railway line, includes the following
passage:
The beautiful city of water [i.e. Osaka] has vanished as a dream of the past, and you, my
unfortunate citizens of Osaka, live in a city of smoke and dark skies! You, who are aware of
the [poor] sanitary conditions of the citizens, with a birth rate of 10 [per 1000] and a death
rate of over 11, must be horrified by the discomfort of city life, while at the same time
longing for the joys of suburban life, rich in pastimes of the countryside. The first require-
ment for suburban life is convenient transportation. Now that the trains in Osaka City have
been opened in all directions, the existing Hanshin and Nankai lines, as well as the Keihan
Minoh-Arima line, connect the inside and outside of the city from the east, west, south, and
north, and each line has its own special characteristics along its route to satisfy your wishes.
At this time, we believe that it is the duty of the Minoh-Arima Railway Company to
showcase the scenic homes along its route and present you with a question: “What kind of
land should I choose?” We are the only company among all the electric railway companies
that owns land in the most suitable location [...] The land owned by the company is more
than 86 cho [1 cho is roughly a hectare], and if the price is just over 300,000 yen (excluding
the city area), the average price per tan [roughly 100 sq. meters] is only a little over 360 yen
per tan.11 If we were to measure this, it would amount to just over 300,000 tsubo, and this
area of more than 300,000 tsubo should be left to your choice as an ideal new residential area
for suburban life, and it waits for you to move in to turn it into a great paradise. You can see
the moon’s shadow in the treetops, and hear plovers calling their friends in the foamy waves
off the coast. Therefore, the company will also actively operate a model new residential area,
and would like to greatly appeal to the tastes of the citizens of Osaka.12
In other words, MAER had acquired a total of approximately 200,000 tsubo of land
for residential development along the railroad route by October 1908, and a cumu-
lative total of over 300,000 tsubo by the fall of 1909, before launching the railroad in
March 1910.
In June 1910, 3 months after the start of the railway’s operation, the MAER began
selling the Ikeda-Muromachi area as the first residential sale of land along the
railroad line; the results were favorable.13 For this area (total area: 33,020 tsubo),
the company established “dozens of streets going north, south, east, and west,” and
adopted the format of “one residence, each with a floor space of 20 tsubo or less, is to
10
Requoted from Kobayashi, I. (1953). Itsuo jijoden (An autobiography of Itsuo) (p. 185). Tokyo:
Sankei Shimbun Co., Ltd.
11
One tan is one-tenth of a cho, equivalent to 360 tsubo (according to the conversion of that time).
One tsubo equals almost 3.3 square meters.
12
Requoted from op. cit., Kobayashi, I. (1953), pp. 189–190.
13
See Keihanshin Express Electric Railway (1959). Keihanshinkyukodentetsu gojunenshi (The
fifty-year history of Keihanshin Express Electric Railway). (p. 10). Osaka: Keihanshin Express
Electric Railway.
be built within a lot space of 100 tsubo, and two hundred houses of several dozen
types are to be built.14”
Each house was to have “a large garden,” “electric lighting,” and “adequate
sanitary facilities such as ditches and sewers,” while the whole residential area
was to have “complete streets with trees planted on both sides” and “a company-
operated purchasing cooperative to ensure a low-cost supply of goods.” Also, “A
new club was to be built as an entertainment facility, complete with a pool [billiard]
hall and other facilities,” “parks and flower gardens were to be established to
promote the hobby of horticulture and bonsai, and daily necessities such as barber-
shops and western-style laundry were to be provided.15” The sales price per unit in
the Ikeda-Muromachi residential area was 2500 yen (including land, house, garden,
and facilities), and “the method of sale was an upfront down payment of 50 yen,
followed by monthly installments of 24 yen per month for 10 years”.16
Following the Ikeda-Muromachi residential area, MAER sold the Sakurai resi-
dential area (total space: 55,000 tsubo) in June 1911 and the Toyonaka residential
area (total space: 50,000 tsubo), also located along the railway line, in August
1914.17 Thereafter, the company continued to actively promote the sale of residential
land along the railway line.
Parenthetically, did Minoh-Arima Electric Railway’s residential land sales gener-
ate the kind of profit that Ichizo Kobayashi expected? Regarding the acquisition of
land, Kobayashi himself recounts in “Itsuo Jijoden” (Autobiography of Itsuo) that
“The standard price for selecting land for residential business, comparable to the
lifeblood of this company, was estimated at 1 yen per tsubo, and [. . .] the process
went roughly according to budget” (p. 175). This point is consistent with the
statement in a MAER pamphlet published in 1909 entitled “What Kind of Land
Should You Choose and What Kind of House Should You Live in?” stating that over
300,000 tsubo of land was purchased for over 300,000 yen. On the other hand, there is
no reliable historical record that tells how much MAER earned per tsubo from the sale
of residential land. However, a newspaper article from September 1913 points out
that it was around 2 yen per tsubo.18 Although unconfirmed, it seems that MAER
succeeded in making a profit close to the 2.5 yen per tsubo level Kobayashi initially
aimed for through the sale of houses in the early stages of its business. Even though it
did not fully reach his target, this success was due to Kobayashi’s purchase of land
along the railroad line at a low price prior to the opening of the railroad. In other
words, he had already factored in the spillover effect that would materialize over time.
14
See Hanshin Express Electric Railway (1932), ‘Tochi jutaku keieino ganso’ “Hanshin Kyuko
Dentetsu nijyuugonenshi” (‘The Origin of the Land and Housing Business Management,’ in The
25-year history of Hanshin Express Electric Railway, Osaka: Hanshin Express Electric
Railway, p.4.
15
Ibid., pp.3–4.
16
Op. cit., Keihanshin Express Electric Railway (1959), p. 120.
17
Op. cit., Hanshin Express Electric Railway (1932). ‘Nenpu’ (‘Timeline’) pp. 4, 6.
18
Osaka no kogai-densha (3) (Suburban trains in Osaka (3)). Chuo Shimbun (Central newspaper),
September 17, 1913.
Ichizo Kobayashi’s Entrepreneurial Innovation 105
Ichizo Kobayashi’s Entrepreneurial Innovation
MAER became the pioneer in the real estate business among electric railway
companies thanks to the entrepreneurial spirit of Ichizo Kobayashi, its senior
managing director. He overcame shareholder opposition and pressed ahead with
“housing management, the lifeblood of this company.”
He devoted himself to managing MAER’s residential area with two goals
in mind:
1. Increasing the number of passengers by expanding the number of residents living
along the railroad lines, thereby indirectly increasing the profit of the railroad
business.
2. Factoring in the future spillover effects (by selling the land purchased at a low
price before the opening of the railroad at a high price after the railroad opening),
so that the company directly benefits from the residential real estate business
itself.
Hanshin Electric Railway had already begun to implement the first goal in 1909,
earlier than MAER, through its home rental business. However, home rental was
unlikely to serve as strong motivation for a railroad company to enter real estate in
earnest, since they would have no advantage over other real estate and housing
companies starting business along the railway line. Therefore, the ground-breaking
nature of Kobayashi’s idea did not stem from Hanshin’s pattern.
Rather, Kobayashi became a trailblazer because he was the first to address the
second goal, spillover profit. Subsequently many electric railway companies built or
extended lines following Kobayashi’s approach, entering the real estate sector in
earnest after factoring in spillover effects. Even in cases where no new railroad lines
were built or extended, it was possible to create business opportunities by increasing
the number of trains in operation, building new stations, operating express and
limited express trains, creating new bus routes linked to trains, and connecting or
interconnecting with other railway companies’ lines. Based on these spillover
effects, Japan’s electric railway companies increased involvement in the real estate
sector, leading to accelerated urbanization in the following years.
As part of such increased urbanization, the Takarazuka Shoka-tai, founded in
1913, developed into the Takarazuka Revue, and in 1932 Kobayashi founded the
Tokyo Takarazuka Theater (later known as Toho). In 1927, he became president of
Hankyu Railway, and in 1929, he opened Japan’s first rail terminal department store,
Hankyu Department Store, in Umeda, Osaka. In addition, as a pioneer in the new
urban tertiary industry, Kobayashi assumed a series of key posts: President of Tokyo
Electric Light in 1933, Minister of Commerce and Industry in the second Fumimaro
Konoe Cabinet in 1940, and after World War II, Minister of State and President of
the Sensai-Fukko-in (War Damage Restoration Agency) in the Cabinet of Kijuro
Shidehara in 1945. Kobayashi passed away in January 1957.
Kobayashi Also Contributes to Electrification
Thanks to his managerial skills demonstrated at Hankyu Railway, Kobayashi was

also called to serve Tokyo Electric Light where he was responsible for restructuring
the company’s management, serving as president from November 1933 to March
1940.In the process he became not only a leader in urbanization but also in
electrification.
Among the measures he undertook were innovations in sales, displaying his
ingenuity. A company history edited by Tokyo Electric Power—“The Kanto
Region’s Electric Utility Industry and Tokyo Electric Power—From the Inception
of the Electric Utility Industry to the 50th Anniversary of Tokyo Electric Power”
(2002)—provides a detailed description of sales innovations that he spearheaded
(pp. 438–447):
1. Established 17 sales offices in Tokyo (December 1931). He “divided the sales
offices jurisdictions into ‘smaller areas, allowing the staff to give customers better
service, like true businessmen’.”
2. Initiated a cultivation campaign by inspiring a “businessman’s spirit.” “Specifi-
cally, to increase the number of lights, brightness, and especially the sale of
electrical appliances, with the aim of ‘increasing sales per kilowatt-hour’.”
3. Improved customer service. The “hidden and true purpose” of selling heating
equipment on the street as part of the demand cultivation campaign referred to
earlier was “to foster and inspire a spirit of customer service among the staff.”
4. Systematized a fee-related administration. “Unlike the previous ‘spiral collection
method,’ in which the company collected fees on days when it was convenient,
customers were charged by the same collector at approximately the same time on
a fixed date. This instilled a sense of obligation in the company [clients], and the
number of customers who paid on the fixed date gradually increased.”
It is noteworthy that Kansai Electric Power’s first president, Shiro Otagaki (president
from May 1951 to November 1959), and its second president, Yoshishige Ashihara
(president from November 1959 to November 1970), both hailed from Hankyu
Railway and trained under the tutelage of Kobayashi. During the reign of presidents
Otagaki and Ashihara, nine Japanese electric power companies (Hokkaido Electric
Power, Tohoku Electric Power, Tokyo Electric Power, Chubu Electric Power,
Hokuriku Electric Power, Kansai Electric Power, Chugoku Electric Power, Shikoku
Electric Power, and Kyushu Electric Power) enjoyed a “golden age,” providing a
“stable and inexpensive supply of power. Kansai Electric Power stood out among the
nine for its corporate vitality.19” The 1961 commissioning of the Kurobegawa
No. 4 power plant, on which the Otagaki and Ashihara duo bet the company’s
future, symbolized such vitality. It introduced innovative management unique even
among the nine electric power companies during their golden age. This case was an
19
See Kikkawa, T. (2004a). Nihon denryokugyo hatten no dainamizumu (The dynamic develop-
ment of Japan’s electric power business) (pp. 287, 364). Nagoya: Nagoya University Press.
Kobayashi Also Contributes to Electrification 107
example of multiple top managers in the same human network passing down
innovative DNA that advanced corporate management.
In “Fifty Years of Anxiety and Enjoyment: Yoshishige Ashihara’s Retrospection
and Vision,” edited by Tsunehiko Yui (Japan Business History Institute, 1978),
Ashihara recalls the three-way relationship between himself, Kobayashi, and
Otagaki:
Mr Kobayashi taught me many things, but the most important thing was that in business and
management it is not enough to look back, you must foresee a little further into the future.
Unless you are willing to take risks and decisive action, your business will never prosper.
Another thing is that above all else business management must be carried out sensibly. These
two were the most important. (p. 31).
Apparently there was little disagreement in the Public Service Committee about making
Mr. Otagaki the president of Kansai Electric Power. Nihon Hassoden 20 did recommend
Mr. Ikeo,21 but his recommendation was not forceful, so the decision was easily made.
However, to tell the truth, we were unsure as to whether Mr. Otagaki would assume the
post.22 So Mr. Matsunaga23 and Mr. Hori24 appealed to Mr. Ichizo Kobayashi. Mr. Otagaki
himself said that if Mr. Kobayashi agreed that he should become president, then he would
accept, and thus Mr. Otagaki was chosen, is what I’ve heard (p. 80).
The spirit of streamlining is one of the Kobayashi-isms. First, Mr. Otagaki told us not to
store unnecessary items in the warehouse. He made us go through the warehouse and if we
found anything useless, we had to dispose of it and exchange it for money, no matter how
trivial it was. Also, since the collection rate for electricity fees was low, we were told to
improve it somehow. In addition, there was a lot of electricity loss, so we were told to lower
the loss, and since the thermal efficiency at thermal power plants was poor, we were told to
improve the efficiency of the machines. He found various such problems, and since they
were technological issues, he told Ashihara to deal with them (p. 92).
Responding to historian Tsunehiko Yui’s question, “I heard that Mr. Otagaki often
talked about the importance of timing in decision-making?” Ashihara replied:
We always discussed important matters together, so we were on the same page in everything,
but he told me, “Ashihara, no matter what you do, there is always risk, no matter how careful
you are in your research and investigation. Therefore, if you have about 80% certainty and
the risk is about 20%, the president is responsible for deciding.”... I guess that means
managers have to make decisions at 80 percent certainty (p. 95).
Ashihara’s description shows that when both Otagaki and Ashihara took charge of
Kansai Electric Power’s operations they applied their Hankyu Railway era mentor
Kobayashi’s foundational thinking. This meant taking risks based on foresight and
consistently taking a rational approach.
20
Reference to Nihon Hassoden, a major entity in the state management of electric power.
21
Reference to Yoshizo Ikeo, second president of Nihon Hassoden, from January 1941 to
August 1943.
22
Yoshishige Ashihara was vice-president of Kansai Haiden at the time.
23
Reference to Yasuzaemon Matsunaga, acting chairperson of the public utilities committee at
the time.
24
Reference to Shin Hori, a former president of Kansai Haiden, who became chairperson of the
board of directors at the same time as the establishment of the Kansai Electric Power Company.
parts of it.
Case 9 Yasuzaemon Matsunaga:
Electrification Leader Establishes Private
Sector-Led Public Utility Operations
Abstract This chapter introduces Yasuzaemon Matsunaga, who held top manage-
ment positions at Kyushu Electric Light Railway and its predecessor companies, and
then Toho Electric Power.
Encounter with the Electric Power Business
Just as Kobayashi was the undisputed champion of urbanization, Yasuzaemon

Matsunaga was undoubtedly the standard-bearer of electrification.1
Born in 1875 (Meiji 8) as the eldest son of a family running its own business in Iki
Island, Nagasaki Prefecture, Matsunaga entered Keio Gijuku in 1889, where he met
his lifelong ally and rival, Momosuke Fukuzawa (adopted son-in-law of Yukichi
Fukuzawa). After a brief period as a salaried employee of the Bank of Japan,
Matsunaga became a lumber merchant (Marusan Shokai) and a coal and coke
merchant (Fukumatsu Shokai), both of which were joint ventures with Momosuke
Fukuzawa.
Having established contacts in northern Kyushu through his handling of coal dust
and coke, Matsunaga was asked to become the managing director of the Fukuhaku
Electric Railway in Fukuoka City. This position focused his attention on electricity
as a source of power. In 1910, he established Kyushu Electricity and became
managing director of an electric power business. Meanwhile, Momosuke also
became president of Fukuhaku Electric Railway and director of Kyushu Electricity.
Thus, Matsunaga and Momosuke began to build their careers as electric power
business managers almost simultaneously, like a pair in a three-legged race.
1
For details regarding Yasuzaemon Matsunaga, see: Kikkawa, T. (2004b). Matsunaga
Yasuzaemon: Ikiteiru-uchi oni to iwaretemo (Matsunaga Yasuzaemon called “Demon” while he
was alive). Kyoto: Minervashobo.
© Kreab K.K. 2023 109

110 Case 9 Yasuzaemon Matsunaga: Electrification Leader Establishes. . .
Practicing “Scientific Management”
Matsunaga’s career as an electric power business executive can be roughly divided

into two phases: first, the period from 1908 to 1922 (Meiji 41—Taisho 11), when he
held top management positions at Kyushu Electric Light Railway and its predecessor
companies (Kyushu Electric Light Railway was formed when Hakata Electric
Railway—formerly, Fukuhaku Electric Railway—and Kyushu Electricity merged
in 1912); and second, the period from 1922 to 1942 (Taisho 11—Showa 17) when he
served in top management of Toho Electric Power. Matsunaga’s approach to running
the electric power business was outstanding in three respects: his emphasis on
customers; his development of power sources using hydro and thermal power; and
his innovation in financing.
In emphasizing customers, Matsunaga consistently adopted low-rate, high-qual-
ity service to cultivate new clients. During his tenure at Kyushu Electric Light
Railway, he drastically reduced electric light fees and removed a restrictive clause
in the supply rule that said “no [power line] extension will be granted unless at least
30 lights are to be set up per 1 electricity pole.” Removal of this stipulation meant
that electricity could be supplied even to remote areas.
Matsunaga’s fostering of a customer base eventually led to improved perfor-
mance by Kyushu Electric Railway and was a major force in the company’s rise to
dominance in northern Kyushu’s electric power sector. Matsunaga’s emphasis on
customers remained unchanged during his time at Toho Electric Power. By the time
he took over the management of Kansai Electric, the predecessor of Toho Electric
Power, frequent power outages during the days of Nagoya Electric Light Company
(the predecessor of Kansai Electricity) were causing dissatisfaction among Nagoya
residents. Matsunaga took emergency measures such as automatic disconnection
from main power lines, reinforcement of repair teams, establishment of temporary
substations, and buying more electricity. He even brought his own bed to the central
feeder station to be there around the clock, resolving the outage problem in about
a year.
After the company [Kansai Electricity] was reestablished as Toho Electric Power,
Matsunaga continued to improve the facilities by increasing the voltage of the
transmission lines, improving the feeder lines, laying special high-voltage transmis-
sion lines, and building new power plants. As a result, Toho Electric Power regained
Nagoya residents’ trust within a few years of its establishment.
The policy of developing hydro as well as thermal power sources contributed
greatly to lowering the cost of power generation.
The waterway-style, hydro power generation system adopted by many electric
power companies of the time was fundamentally flawed. In winter, when demand for
electricity rose, water was in insufficient supply, while in summer season, when
demand declined, there was an overabundance of water. Therefore, according to
Matsunaga, “If hydroelectric facilities are designed for maximum load in winter, the
Practicing “Scientific Management” 111
surplus power will increase in summer.2” However, “in order to develop hydro
power generation in the most economical manner, other methods must be devised to
compensate for the shortage of power generation capacity due to reduced water flow
[during the winter].3” Matsunaga advocated the adoption of a combined hydro and
thermal system that would utilize cheaply built thermal power plants as backup.
As mentioned above, the merger of Hakata Electric Light Railway and Kyushu
Electricity brought about the establishment of Kyushu Electric Light Railway;
Matsunaga played a leading role in achieving this merger. He envisioned the
integration of Hakata Electric Light Railway, whose electricity division focused on
thermal power generation, and of Kyushu Electricity that was focused on hydro-
electric power generation. The integration established a combined hydro and thermal
power supply system, thereby lowering the cost of power generation.
The combined use of hydro and thermal power generation advocated by
Matsunaga was put into full practice when Toho Electric Power built the Nagoya
Thermal Power Station, Najima Thermal Power Station, and Maeda Thermal Power
Station. Such construction was daring at a time when mainstream thinking held that
“hydropower is the panacea” and “thermal power puts the country in peril.” When
the economic efficiency of the combined use of hydro and thermal power was
confirmed, industry-wide adoption began—long after Matsunaga first advocated
the method.
Yasuzaemon Matsunaga when he was president of Toho Electric Power in 1933. (Provided by
Mainichi Shimbun)
Innovations in financing were also highly relevant to cost reduction. Matsunaga

pointed out that “highs and lows of interest rates do affect the cost of electricity.4”
2
Matsunaga, Y. (1933). Denkijigyo tosei ni tuite (Regarding the control of the electric power
business). Denki koron (Public opinion on electric power), 17(10).
3
Matsunaga, Y. (1927). Denkijigyo (Electric power business). Shakaikeizai-taikei daikyukan
(Social and economic systems, vol.9). Tokyo: Nihon Hyoron Sha Co., Ltd.
4
Toho Electric Power Co., Ltd. History Compilation Committee (Eds.) (1962). Tohodenryoku-shi
(The History of Toho Electric Power Co., Ltd.). Tokyo: The Publishing Association of the History
of Toho Electric Power Co., Ltd.
Instead he focused on developing stable, low interest sources of financing. Toho

Electric Power’s actions, such as its aggressive issuance of foreign bonds and quick
response to the yen’s decline after 1932, its campaign to expand the maximum bond
issuance limit, and its utilization of a new collateral system (open-end mortgage
system) at the issuance of bonds, reflected Matsunaga’s ingenious approach to
financing.
Toho Electric Power’s electricity generation costs declined more than those of its
peers thanks to combined use of hydro and thermal power and to innovative
financing. For instance, the equipment cost per 1 kW in a given sales area around
1931 was only 792 yen for Toho Electric Power, compared with 884 yen for Tokyo
Electric Light.5 Contemporary economic magazines praised Matsunaga’s manage-
ment skills, calling it “scientific management.” Matsunaga became one of the most
prominent managers in prewar Japan’s electric power industry.
Matsunaga’s Foresight in “Personal Opinion on Electric

Power Regulation”
In the Japanese electric power industry of the 1920s, the so-called power war—a
battle for large customers in major cities—intensified, with debates over regulating
power companies rapidly becoming a social issue. Here, too, Matsunaga demon-
strated foresight setting him apart from other business leaders. In “Personal Opinion
on Electric Power Regulation” published in 1928, he foresaw the 1951 reorganiza-
tion of the electric utility industry 23 years in advance, and clearly displayed his
visionary ideas.
In a Nikkei newspaper column published after the war, Matsunaga recalled his
1928 proposal that “The entire country should be divided into nine regions, and a
one-area, one-company system should be adopted. Small companies should be
combined if possible and if not, they should be pooled and allowed to monopolize
supply areas. Public and government thermal facilities, such as many owned by the
Ministry of Railways, should be transferred to the private sector to improve the load
and dispersal rates of electricity nationwide, and rates should be based on a license
system. A “Public Utilities Commission” should be established as an oversight
body.6” Matsunaga pointed out that his suggestions from 23 years earlier were
“almost equivalent to the post-war reorganization which resulted in the current status
quo.”
Why was Matsunaga the only one of the many managers in the electric power
industry to show such foresight concerning control of electric power? The answer
5
See Abe, R. (1931). Godai denryoku no yuretsu (The superiority and inferiority of five major
electric power companies). Tokyo: Diamond, Inc.
6
See Matsunaga, Y. (1964). Watashi no rirekisho 27 (My résumé 27) in Nihon keizai shimbun (The
Nikkei), 28 January.
Matsunaga’s Foresight in “Personal Opinion on Electric Power Regulation” 113
lies in Matsunaga’s valuing of research and its implications. Momosuke Fukuzawa,

his lifelong friend and rival, said, “I am no slouch when it comes to research, but
Matsunaga’s thoroughness is so impressive that I would completely surrender.7”
Matsunaga sent a total of 42 Toho Electric Power employees (including directors)
overseas for observation and practical training, establishing a Research Department
as a permanent in-house unit.
Although these measures were unprecedented for an electric power company at
the time, the information that overseas employees obtained from Western countries,
and the findings from a series of studies carried out by the Research Department,
shaped Matsunaga’s argument for regulation of the electric power industry. Unlike
Matsunaga, Fukuzawa prioritized hydro power development, advocating nationali-
zation of the electric power industry and separating electric power generation/
transmission from electric power distribution. Fukuzawa’s concept of electric
power industry regulation called for government management, separation of power
generation/ transmission and distribution, and hydro-centered development. It was
implemented as the wartime government’s policy on electric power. On the other
hand, Matsunaga’s concept of private sector-led management, integrated manage-
ment of power generation/transmission and distribution, and combined hydro and
thermal systems, became the basis for postwar reorganization of the electric power
industry.
In other words, Fukuzawa and Matsunaga foresaw two major epochs in the
history of the Japanese electric power industry—state control over the electric
power industry and its subsequent reorganization—long before they happened,
earning Fukuzawa the title of “King of Electricity” and Matsunaga the “Demon of
Electric Power.”
Retrospectively, however, Fukuzawa achieved success in hydropower develop-
ment centering on the Kiso River system (called the “Electricity King” in recognition
of this), but was unsuccessful in the electric power distribution business where
service to customers was the key. Matsunaga had no choice but to help with the
restructuring of Kansai Electric, the predecessor of Toho Electric Power, given that
Fukuzawa, as president of Nagoya Electric Light (the predecessor of Kansai Elec-
tricity) had poorly managed the power distribution business and drawn the ire of
Nagoya residents, requiring Matsunaga to rectify the situation.
7
Matsushima, H. (1980.) Matsunaga Yasuzaemon min’ei jigyo hitosujini ikita denryoku keieisha
(Yasuzaemon Matsunaga: An electric power manager who devoted his life to private enterprise). In
K. Shimokawa, A. Sakaguchi, H. Matsushima, Y. Katsura, & H. Omori (Eds.). Nihon no kigyoka 4:
Sengo-hen (Japanese entrepreneurs 4: The postwar edition) (p. 113). Tokyo: Yuhikaku Publishing
Co., Ltd.
The Japanese Government Imposes Controls over

the Electric Power Industry
Although Matsunaga’s concept of regulating the electric power industry showed

foresight, the Japanese electric power industry did not follow a straight path to
reorganization in line with Matsunaga’s 1928 “Opinion” publication, but rather took
a “long detour8” under government control. State control of the electric power
industry was unsuccessful in the following areas:
1. It shut down the creative efforts of power industry managers and the vitality of
private power companies.
2. A centralized system of mostly hydroelectric power generation and transmission
led to problems with power supply stability and generation costs.
3. It led to complete separation of the generation/transmission business from the
distribution business.
Despite these weaknesses, state control was enforced due to the rise of nationalist
ideology and other factors outside the economy. It is also true, however, that
voluntary regulation by the electric power industry in the 1930s had unmistakable
drawbacks, lending persuasiveness to the case for state control. Simply put, the
problem was that wholesale and retail power companies were allowed to coexist.
One reason the electric power industry did not accomplish voluntary regulation as
envisioned by Matsunaga in the 1930s was his own fiery temper that led him to
harshly criticize the management of other companies in the industry. At the time, the
Federation of Electric Power Companies of Japan (FEPC), established in 1932, was
the leader in promoting voluntary regulation, but Matsunaga’s evaluation of the
federation was ambivalent. On the one hand, the FEPC’s power in deterring com-
petition was in line with Matsunaga’s vision; on the other, the FEPC upheld
maintenance of the status quo and allowing the permanent coexistence of wholesale
and retail power companies. Coexistence of wholesale and resale contradicted
Matsunaga’s goal of integrating electric power generation/transmission and distri-
bution. Consequently, he withheld direct judgment on the FEPC immediately after
its formation, but when the federation decided to resume hydroelectric power
development in 1933, he vehemently opposed it as a return to hydroelectricity-
oriented policy. Without restraint, he repeatedly criticized other electric power
industry managers.
In addition to Matsunaga, another person within Toho Electric Power was
frustrated with the lack of progress in voluntary regulation by the power industry.
This was Daijiro Ide, a key member of the company’s Research Department who had
long served as Matsunaga’s right-hand man. Ide was indispensable in helping
Matsunaga with a series of plans to control the electric power industry. However,
Ide became increasingly frustrated with the inadequacy of voluntary regulation and
8
Op. cit., Kikkawa, T. (2004a), p. 203.
Matsunaga Leads the Reorganization of the Electric Power Industry 115
eventually left Toho Electric Power, becoming a leading proponent of state control.
In contrast, while also frustrated, Matsunaga remained a believer in the private-
sector-run electric power industry. Fiercely clashing with his former ally Ide,
Matsunaga remained permanently opposed to state control.
The main opponents of state control of the electric power industry were the
industry’s executives, with Matsunaga the outstanding figure in terms of compre-
hensiveness and consistency of arguments. Yoshizo Ikeo, president of Nippon
Denryoku (Nippon Electric Power), often referred to alongside Matsunaga as a
leading opponent of state control, was inconsistent in his opposition, and ultimately
accepted state control. This is demonstrated by Ikeo’s appointment in 1941 as
president of Nihon Hatsusoden, the company that served as the keystone of state
control of the electric power industry.
On the other hand, Kiwao Okumura, a well-known proponent of state control,
was an innovative bureaucrat and researcher at the Cabinet Research Bureau, the
same organization that prepared the 1936 proposal igniting the state control debate.
As a bureaucrat, however, Okumura needed support of industry insiders to create a
feasible proposal for state control. One such insider was Daijiro Ide who had become
an expert member of the Cabinet Research Bureau after leaving Toho Electric
Power.9 Thus Ide was the main player behind the creation of the Cabinet Research
Bureau’s draft proposal. In the resulting debate over state control of electric power,
the erstwhile allies Matsunaga and Ide headed two opposing camps.
Despite the strong opposition by Matsunaga and others, the government imposed
state control over the electric power industry in 1939. Almost all private electric
power companies, including Toho Electric Power, were forced to dissolve by 1942.
Matsunaga Leads the Reorganization of the Electric Power

Industry
Thirteen years of state control of the electric power industry finally ended in 1951,
6 years after Japan’s defeat in World War II. Unsurprisingly, Matsunaga led its
reorganization.
Following his defeat in the state control debate, Matsunaga lived in seclusion
during the war, but returned to public life in 1949 as the chairman of the Electricity
Industry Reorganization Council. Based on his “Opinion” publication from 20-odd
years earlier, he spearheaded the effort to create a system dividing Japan into nine
regions, integrating power generation, transmission, and distribution, with private
companies in charge of the power facilities’ ownership and operation.
9
See Sakurai, N. (1964). Denryokusangyo to kokkakanri (Electric power business and state
control). In T. Kurihara (Ed.), Gendai Nihon sangyo hatten-shi III denryoku (The history of the
development of modern Japanese industries III: Electric power). Tokyo: Kojunsha.
The GHQ (more precisely, GHQ/SCAP, or the General Headquarters Supreme

Commander for the Allied Powers), which held absolute power during the occupa-
tion of Japan, initially insisted on an electric utility restructuring plan that differed
from Matsunaga’s but eventually supported his plan. The GHQ’s reorganization plan
was in flux, with plans to divide Japan geographically into five, seven, nine, or ten
electrical regions. The difference in ability between Matsunaga who had a thorough
knowledge of Japan’s electric power industry, and the GHQ who had conducted
research in haste, was obvious and the reorganization was implemented under
Matsunaga’s leadership.
His overall prewar experience as described above was an important factor
underlying Matsunaga’s “scientific management” approach to the electric power
industry. Moreover, Matsunaga brought on board some of the most talented people
in Japan’s electric power industry before and after World War II. For example, a trio
of supporters played an important role in formulating his proposal for the nine-block
system: Kazutaka Kikawada of Kanto Electric Distribution, Yoshishige Ashihara of
Kansai Electric Distribution, and Michio Yokoyama of Chubu Electric Distribu-
tion.10 These three later became presidents of Tokyo Electric Power, Kansai Electric
Power, and Chubu Electric Power, respectively, standing in the frontline of Japan’s
electric power industry during the ensuing period of rapid economic growth.
The nine-block system that came into being in 1951 after reorganization of
Japan’s electric power industry’s under the Matsunaga Plan proved successful and
lasting. Despite a superficial change with the 1988 privatization of Okinawa Electric
Power, making it a 10-block system, it has basically remained the same to this day.11
Two Contributing Factors to Matsunaga’s Ascent
How did Matsunaga manage to play such an important role in the history of Japan’s
electric power industry? There were two key contributing factors.
First, Matsunaga’s customer-centric approach underlay his efforts. He pioneered
a novel business model featuring combined hydro and thermal power generation,
integrated management of power generation/transmission and distribution, and
initiated innovative financing. In the history of the Japanese electric power industry,
many managers have tried to enter new markets and grow their businesses by talking
about a “customer-centric” approach, while aggressively lowering prices for a short
term. Most of them, however, lacked a business model that would ensure a customer-
centric stance over the long term, and they eventually disappeared.
10
Kojima, N. (1980). Matsunaga Yasuzaemon no shogai (The life of Yasuzaemon Matsunaga).
Tokyo: The Publication Group of Biographies of Yasuzaemon Matsunaga.
11
However, the liberalization of electric power retail sales in 2016 greatly changed the power
supply system comprised of ten companies. Furthermore, the separation of power generation and
power transmission in 2020 terminated the role of the power supply system based on ten companies.
Establishment of the “Private Sector-Led Utility” Model 117
Although few, there were managers in addition to Matsunaga, such as Momosuke

Fukuzawa, who proposed progressive business models. However, as seen in
Fukuzawa’s model, most of them were rooted in supply-side logic, obviously
inferior in substance to Matsunaga’s customer-centric model. Matsunaga was a
rare manager in the electric power industry in combining a customer-oriented
approach with a progressive business model.
Second, Matsunaga became a rallying point for talented individuals who played
active roles in the development of Japan’s electric power industry. As noted,
Matsunaga met an irreplaceable “life-long rival” in his younger days, Momosuke
Fukuzawa who overshadowed him as a businessman in his early days as an investor
and as a member of the House of Representatives. However, Matsunaga surpassed
Fukuzawa in managing the electric power industry. Without exaggeration, we may
say that the drive fueling “Matsunaga’s thoroughness in his research,” ultimately
contributing to his unparalleled leadership of Japan’s electric power industry, was
his strong rivalry with Fukuzawa.
Also notable was Matsunaga’s relationship with Daijiro Ide, who became his
adversary in the process of implementing state control of electric power industry. Ide
was the main player behind imposition of state control on the electric power
industry. However, the mutual trust that was formed between Matsunaga and Ide,
allies during their earlier days at Toho Electric Power, continued throughout their
lives. That Matsunaga entrusted Ide in 1959 with the publication of the “History of
Toho Electric Power” (edited by Toho Electric Power Company History Compila-
tion Committee, 1962) 8 years after the reorganization of the electric utility industry
(i.e., the end of state control) is a true testament.
In addition, the trio of his supporters—Kazutaka Kikawada, Yoshishige
Ashihara, and Michio Yokoyama—played a significant role in the reorganization
of the electric utility industry. Without their help in promoting the reorganization
efforts, Matsunaga might not have attained success.
Establishment of the “Private Sector-Led Utility” Model
Even after the reorganization, Matsunaga continued to play an active role in the
electric power industry. In 1953 he became president of the Central Research
Institute of Electric Power Industry (CRIEPI). Overcoming government opposition,
Matsunaga facilitated the primary use of thermal power over hydro power and the
use of oil over coal. Such use of fuel contributed greatly to realizing a “low-cost,
stable electricity supply,” one of the factors behind the rapid growth of the Japanese
economy. People came to call Matsunaga the “Demon of Electric Power” in awe of
the innovations he accomplished one after another, fighting government regulations
until he passed away in 1971.
The first electric power company in Japan, Tokyo Electric Light, was established
in 1883 (Meiji 16). Ever since, the major characteristic in the development of Japan’s
power industry (except the period between 1939 and 1951 when it was under state
control), has been private ownership and operation. This contrasts with the telecom-
munications industry that was also under the jurisdiction of the Ministry of Posts and
Telecommunications before World War II, but was kept under the direct control of
either the government or a public company from its inception in 1869 until the
privatization of the Nippon Telegraph and Telephone Public Corporation in 1985.
Unlike the telecommunications industry, there were two reasons for the domi-
nance of private companies in the electric power industry:
(a) differences in the initial conditions;
(b) differences in subsequent conditions.
Regarding (a), the Meiji government placed decisive importance on the telecommu-
nications industry for its role in national defense and security. Regarding (b), the
accumulation of organizational capacity within the private power companies to
manage the electric power industry basically blocked several nationalization
attempts (except wartime state control implemented amid the rise of nationalist
sentiment).
Japanese private ownership and operation of its electric power industry differs
from the state-run or public-managed electric power industry in major European
countries. It also differs from the U.S. electric power industry in that Japan’s private
sector companies have maintained large-scale operations. In short, Japan adopted a
system that emphasized private-sector dynamism, based on concerted efforts to
accomplish the task of “providing a stable supply of affordable electricity” for the
benefit of the public.
This private-sector-led utility model would continue even after the full liberali-
zation of electricity retailing in 2016 and the separation of power generation and
transmission in 2020. Matsunaga was the key figure in establishing the internation-
ally unique “private sector-led public utility” in Japan’s electric power sector.
parts of it.
Case 10 Saburosuke Suzuki II:
Commercialization of Exceptional
Breakthrough Innovation
Abstract This case introduces Saburosuke Suzuki II of Suzuki Shoten, who suc-
cessfully commercialized Ajinomoto, an umami seasoning made of monosodium
glutamate (MSG), through breakthrough innovation.
“Three Greatest Inventions in Japan”
In response to business opportunities created by the emergence of mass consumer

society in post-World War I Japan, companies dealing in beer, western confection-
ery, seasoning, cosmetics, soap, light bulb, and other goods began to engage in
marketing activities aimed at integrating production and sales. Leading the way were
Suzuki Shoten (predecessor of Ajinomoto), Dai-Nippon Beer (predecessor of Asahi
Beer and Sapporo Beer), Morinaga Seika, Shiseido, Kao Soap, Kobayashi Tomijiro
Shoten (predecessor of Lion), and Tokyo Denki (predecessor of Toshiba).
Among these, Suzuki Shoten was known for Ajinomoto, an umami seasoning
made of monosodium glutamate (MSG)—considered one of the three greatest
Japanese inventions after the enactment of the nation’s 1899 Patent Law. The
other two were pearl cultivation by Kokichi Mikimoto and the automatic loom by
Sakichi Toyoda. Most of the products listed above were imported, but Suzuki
Shoten’s Ajinomoto was the result of breakthrough innovation, an exceptional feat
in Japan at the time.
© Kreab K.K. 2023 119

120 Case 10 Saburosuke Suzuki II: Commercialization of. . .
Invention of Ajinomoto by Kikunae Ikeda
The umami seasoning Ajinomoto went on sale in May 1909 (Meiji 42) as a new,
epoch-making product, launched thanks to the efforts of two key people, Kikunae
Ikeda, its inventor and a professor at Tokyo Imperial University, and Saburosuke
Suzuki II, who commercialized the product.1
“Ajinomoto Kabushiki Kaisha Shashi” (1971), a 60-year history of Ajinomoto,
describes Ikeda’s invention of Ajinomoto:
The experiment was temporarily suspended after the autumn of 1907 [Meiji 40], as Ikeda
was busy with his professional research, but early in the following New Year he came across
a dissertation asserting that umami promotes food digestion (Hiizu Miyake, “Food and
Digestion”). Since Ikeda was always concerned with correcting Japanese nutritional defi-
ciencies, he was strongly motivated to invent and industrialize inexpensive seasonings.
Thus, Ikeda resumed his research, spending about two years total with a break in between
. . . . Through a relatively short experiment of about three months, he finally discovered that
dashi kelp contained glutamate and that this substance (glutamate) was the main component
of umami.
He later recalled the motivation for his research and the process of invention as follows:
“In Meiji 40, my wife obtained a bundle of good kelp from Goni-kai’s product fair. I
thought that although the chemical industry was producing many beautiful pigments to
please the eye and fragrances to delight the sense of smell, products that appealed to the
sense of taste were rare, except for saccharin, a dubious sweetener. I felt that research into the
main flavor components of kelp might help to make up for this shortcoming. I took the kelp
to the laboratory, made a leachate, and removed the inorganic salts and mannitol by
crystallizing them, but the flavoring substance was still in the residual liquid. The attempts
to separate them in various ways failed. Since I was too busy with other research at the time
to continue this experiment outside my professional area, I decided to temporarily halt it. The
following year, in [Meiji] 41, I read an article by Dr. Hiizu Miyake in the Journal of Oriental
Studies, in which he explained that good taste promotes food digestion. I was also one of
those concerned about the nation’s malnutrition, and I had been thinking for a long time
about how we could help, but could not come up with a good idea. However, after reading
this article, I concluded that creating good and inexpensive seasonings and making meager
yet nourishing food delicious would be a way to achieve the goal. I resolved to resume the
research that I had suspended the previous year” (pp. 41–42).
These recollections were originally published as “Motive for the Invention of

Ajinomoto” by Kikunae Ikeda, included in Tokuhei Kametaka’s “Jinsei Kagaku”
[Life is Chemistry], published in 1933 (Showa 8) by Teibi Publishing Company.
1
For details of Kikunae Ikeda and Saburosuke Suzuki II, see The Editing Office of a History of
Ajinomoto Co., Inc. (Eds.) (2009). Ajinomoto Gurupu no hyakunen: Shinkachi sozo to kaitakusha
seishin (The one hundred years of the Ajinomoto Group: New value creation and pioneer spirit).
Tokyo:Ajinomoto. This anthology includes Takeo Kikkawa, Prologue, front page: The moderni-
zation of Japan and “the birth of Ajinomoto”; prologue rear page: The delirious taste contributing to
health; Chapter 1, front page: The agony of generating an epoch-making new product; Chapter 1,
rear page: The factors that enabled production of the epoch-making new product; Chapter 2,
front page: Advancement with repeating challenges; Chapter 2, rear page: The construction of the
production system and the sales system.
Saburosuke Suzuki II Before His Encounter with Ajinomoto 121
Clearly, Ikeda was motivated to invent Ajinomoto out of his desire to improve the
health of the Japanese citizenry through increased nutritional intake.
The Commercialization Effort by Saburosuke Suzuki II

and Others
As a new seasoning, Ajinomoto was subject to repeated trial and error in all aspects
of business, such as production and sales. Saburosuke Suzuki II, of Suzuki Shoten,
solved a variety of problems and successfully commercialized Ajinomoto.
Suzuki was born in Kanagawa Prefecture in 1868 (Keio 3). With his younger
brother Chuji and his eldest son Saburo, he incrementally solved problems and laid
the foundation for the production and sales of Ajinomoto throughout the 1910s. The
following sections describe this process.
Producing Ajinomoto was difficult as the company had no model to follow.
However, technicians led by Chuji Suzuki boldly took up the challenge, making
improvement upon improvement, and establishing the production technology as
they went along.
Saburo was responsible for sales, developing independent and unique marketing
activities. He established outlets, formed sales organizations, and conducted adver-
tising and publicity. From its initial launch, Ajinomoto distribution channels were
expanded beyond Japan to its colonies and Asian countries and regions such as
Taiwan, Korea, and China, securing as broad a market as possible. The scope of
Ajinomoto’s activities then expanded across the Pacific to the U.S., with the opening
of a New York office in 1917.
Saburosuke took advantage of the World War I boom to expand his chemical
business, by starting production and sales of potassium products (especially potas-
sium chlorate) in addition to the existing production of iodine and nitrite. In 1917, he
established Suzuki Shoten Kabushiki Kaisha. In the same year, the Suzuki family
entered the electrochemical industry, and its business blossomed during the World
War I period.
Saburosuke Suzuki II Before His Encounter with Ajinomoto
A biography of Saburosuke II entitled “Biography of Saburosuke Suzuki” was

published in 1932, the year after his death, by the Saburosuke Suzuki Biography
Compilation Society. The book includes a “Short Biography” (Part 1) describing his
life history, his own recollections “My Beginnings and Footsteps” (Part 2), and
memorial essays contributed by Kikunae Ikeda and other related persons (Part 5).
How was Saburosuke able to commercialize Ajinomoto? Statements included in
the “Biography of Saburosuke Suzuki” provide the answer. The key was his
character as an entrepreneur. A person’s character is often vividly revealed in

difficult times. Before his encounter with Ajinomoto, Saburosuke faced challenges
when he was a regular at the rice exchange in Kakigaracho, Nihonbashi, Tokyo in
the late 1880s, making a series of mistakes in market transactions.
After his mother and wife tried to produce iodine products together, they found that they
could make a small profit and asked him to return home [from Tokyo] and take a look. He
said, “You are talking nonsense and it won’t work.” As was his nature, he was determined to
succeed in Kakigaracho, despite repeated failures. This character was one of his strengths.
He was able to achieve success in the production of iodine, the promotion of Ajinomoto, and
the electric power business because of his prudence, diligence and unyielding efforts.
Fortunately or unfortunately, however, success did not arrive in Kakigaracho. (Volume
1, pp. 34–35)
Noteworthy here is that Saburosuke’s failure in the rice market was tied to his
personal strengths of prudence, diligence and unyielding effort. The biographer
suggests that although Saburosuke’s attitude was admirable, he made a mistake in
choosing the rice market as the target of effort. Although this view is persuasive in
light of subsequent developments, one question remains. There were doubtless
others who were equally diligent and determined but who failed in market trading
and ultimately lost their livelihood. How did Saburosuke manage to revive his career
when others failed? The following description in the “Biography of Saburosuke
Suzuki” provides clues.
His momentum in Kakigaracho was as if he was casting his rod against a current, and instead
of moving upstream he was swept downstream. Even Saburosuke, the most strong-willed
and patient, came to realize that a change of direction would be best. By chance, his mother
urged him to return to his hometown, so he returned, feeling drawn. Seeing his mother and
wife working so hard, he must have felt remorse; helping them gradually he learned that the
production of iodine was surprisingly interesting. As his interest grew, so did his willingness
to help, until he finally decided, “I’ll go out on a limb and give it a try.” By nature, once he
made up his mind, he was determined, and once he started, he was not satisfied until he
achieved his goal. That is why he finally started a full-fledged effort to manufacture iodine
products (Vol. 1, pp. 36–37).
Simply put, having failed in market trading, Saburosuke had a place of return,
making his revival possible. The support of his mother Naka and wife Teru was
crucial. Without the iodine manufacturing business started by Naka and Teru,
Ajinomoto may not have come into existence.
One of Saburosuke’s contemporaries was Tomiro Nagase, who also failed in rice
market trading in Kakigaracho, but later achieved success after opening Nagase
Shoten, predecessor of today’s Kao Corporation, in 1887 (Meiji 20). In Nagase’s
case, experience at Ino Kiichiro Shoten, a Western haberdashery merchant in
Nihonbashi Bakurocho, was key to his revival. Nagase joined the business through
the recommendation of a local caretaker (Takichi Akiyama). Recovery from a
market trading failure is hard even for a diligent and devoted person. Only those
fortunate enough to be surrounded by supportive people and who are given worthy
goals can make a comeback.
Conditions That Enabled Ajinomoto’s Commercialization 123
Conditions That Enabled Ajinomoto’s Commercialization
To identify the conditions that made the commercialization of Ajinomoto possible,

we need to look at the circumstances of the encounter between Saburosuke Suzuki II
and Kikunae Ikeda. Ikeda, who contributed an obituary, “I was the birth parent, you
were the foster parent,” to “Biography of Saburosuke Suzuki” describes their
encounter as follows:
I first became acquainted with Mr. Suzuki in the 41st year of Meiji [1908]. For many years
he had been well-known for his iodine manufacturing. At the time, I was consulted about the
use of the by-products of iodine production, but I had nothing to contribute in this respect.
However, [through this encounter] I learned that he was a man with an exceptional
entrepreneurial spirit. So upon completion of my invention [monosodium glutamate/
MSG], I entrusted him with its management, which he gladly accepted. In other words, he
became the foster parent of my invention. The hardships of childbirth are great, but they are
short-lived. On the other hand, the hardships of raising a child would last for years, and it is
an extraordinary feat. (Vol. 5, p. 23).
This text shows that the two men met to discuss the byproducts of iodine production
prior to negotiations over the commercialization of Ajinomoto. Ikeda was already so
impressed by Saburosuke’s entrepreneurial spirit that he entrusted the commercial-
ization of MSG to him almost immediately. What was Saburosuke’s reaction to
Ikeda’s invention of MSG? In his memoirs titled “My Beginnings and Footsteps”
(1928) included in “Biography of Saburosuke Suzuki,” Saburosuke recollected:
In Meiji 41 [1909], Dr. Kikunae Ikeda, a doctor of science, invented a seasoning mainly
composed of glutamate, and I sincerely believed that if this method could be industrialized to
produce a full-fledged product, it would make a great contribution to the happiness of
mankind. At the same time, I believed that commercializing and undertaking large-scale
production of this item would be an unprecedented experiment. So I worked on its manu-
facture and sales, named it Ajinomoto, and devoted myself to developing it as a standalone
business (Vol. 2, pp. 2–3).
Saburosuke accepted Ikeda’s proposal for commercializing MSG, agreeing with

Ikeda’s goal of contributing to human health through umami. Saburosuke also had
the entrepreneurial foresight to realize that commercialization of MSG could pro-
duce a major global business.
This passage suggests that few people other than Saburosuke were willing to
undertake the commercialization of Ikeda’s MSG. However, Teijiro Ishikawa’s
“Biography of Saburosuke Suzuki” (Toyo Shokan) published in 1954, states that
“Mitsui & Co. appeared as a competitor to Saburosuke in the commercialization of
‘Misei’ [MSG] that was patented by Dr. Ikeda” (pp. 145–146). Unfortunately, I
could not confirm whether Mitsui & Co. did indeed emerge as a competitor to
Saburosuke’s MSG.
Whether or not Mitsui & Co. emerged as a rival, the manufacture and commer-
cialization of MSG was successful precisely because Ikeda entrusted the product to
Saburosuke rather than Mitsui. Prior to World War II, zaibatsu obtained patents and
other rights to use innovative technologies in several cases but failed to
commercialize them due to conservative attitudes. Consequently, entrepreneurs who

were not part of a zaibatsu commercialized such innovations.
The manufacture of synthetic ammonium sulfate by Shitagau Noguchi, to be
discussed in Case 12, is a typical example. Commercialization by entrepreneurs
occurred not only in the synthetic ammonia industry, but also in the electrical
machinery, rayon, and aluminum industries. If Ikeda had left commercialization of
MSG to Mitsui, it would have been delayed or halted.
In his later years, Saburosuke looked back on his own business activities and
repeatedly stated that “All promising businesses in Japan tend to be monopolized by
zaibatsu such as Mitsui and Mitsubishi, so I wanted to start a business that others
could not imitate, and I wanted to succeed on my own.”2 Ikeda’s entrusting of
Saburosuke with this project brought the success of Ajinomoto’s commercialization.
Struggles Leading Up to Ajinomoto’s Commercialization
Actually the commercialization of Ajinomoto was a difficult task for Saburosuke. In

his memoir, “My Beginnings and Footsteps,” he wrote:
The invention itself merely showed that artificial seasonings can be chemically produced,
but how to industrialize the manufacturing and how to commercialize the product were
major problems that remained unsolved. Therefore, it was not difficult to imagine the road
ahead as tough for those involved. It had thought about it, but felt I would regret it if I
changed my original intention because of the difficulties. I decided to dedicate my life to the
project, and in Meiji 42 [1909], built a factory in Zushi, Kanagawa Prefecture. Work began
on the invention but it proved far more difficult than expected, especially because it was an
industry originating in our country, with no advanced factories or technology to use as a
model. Thus, we suffered beyond description, but unable to advance or retreat, we pressed
on with our research plan. After many ups and downs, the undertaking gradually showed
promising results. We moved our factory to Kawasaki, Tachibana County, in the
[Kanagawa] prefecture in October of Taisho 3 [1914]. In June of Taisho 6 [1917], Suzuki
Shoten was organized and put into operation (Vol. 2, p. 3).
Suzuki and staff experienced great hardship not only in manufacturing Ajinomoto,
but in its commercialization. Saburosuke’s speech at the celebration of the twentieth
anniversary of the launch of Ajinomoto (in the president’s speech at Sakau-ro
[restaurant], Osaka) indicates this clearly:
To begin with, Ajinomoto was new. Unlike sake or soy sauce, it had not existed. Simply
uttering “Ajinomoto” was not an option. In advertising, we had to explain in detail the
“ingredients,” “properties,” “uses,” “directions for use,” and “amount used.” In terms of
manufacturing, it was also a new business that required original research in equipment,
machinery, and instruments. I cannot recall how often we repeatedly failed and produced
wastefulness that seems foolish in retrospect. All our employees involved in aspects of
manufacturing, sales, and advertising struggled tremendously. (Vol. 2, p. 22)
2
The Editing Office of a History of Ajinomoto Co., Inc. (Eds.) (1971). Ajinomoto kabushikigaisha
shashi dai-ikkan (Vol. 1 of a history of Ajinomoto Co., Inc.) (p. 252). Tokyo: Ajinomoto.
What Made Ajinomoto’s Commercialization Possible? 125
The entire process of production and sales was almost tearful, even from the
perspective of its inventor Ikeda. In his essay “I was the birth parent, you were the
foster parent,” Ikeda describes the struggles of “foster parent” Saburosuke as
follows.
My invention was made on a laboratory table and had not yet been tested even in a small
factory. Therefore, we had to first conduct a test to see if it was suitable for manufacturing.
At this time, we had generally identified the difficulties with machinery and equipment
required for manufacturing as well as the complicated processes. After completing the small-
scale manufacturing tests, we encountered many problems in manufacturing, but your family
gradually conquered these through perseverance and persistence. Although the manufactur-
ing process was gradually perfected, it was even more difficult to commercialize the product
and develop distribution channels: the product was completely unknown to the public. The
first few years of production must have been difficult and miserable. But when the name
Ajinomoto gradually gained recognition, the company decided not to rest on its small
success and moved its factory from Zushi to Kawasaki, improving the product. At the
same time, by applying clever advertising techniques, the company expanded sales channels
and finally achieved its present-day success. In this feat, we should be able to see the true
colors of your enterprise and your unparalleled business acumen (Vol. 5, p. 24).
What Made Ajinomoto’s Commercialization Possible?
How was Saburosuke able to commercialize Ajinomoto? The answer can be sum-
marized by the following three points.
First, his personality and attitude towards the business, persisting in the original
ideal. As noted earlier, he was a man of “prudence, diligence and unyielding efforts”
even before his encounter with Ajinomoto. Saburosuke himself said: “I would regret
it if I did not continue my original intention due to the difficulties involved. I decided
to dedicate my life to this.” And Ikeda highly praised Saburosuke’s “perseverance
and efforts.”
Second, Saburosuke’s entrepreneurial ability, foresight and business acumen. His
ability is clearly demonstrated in his foresight that MSG could become a major
global business. Through clever sales strategy he succeeded in commercializing
Ajinomoto, an unknown product, and advanced the business with forward-thinking
spirit, usually unthinkable for a zaibatsu.
Third, the Suzukis’ family-wide support. Saburosuke’s recovery from his market
trading failure was possible because of the cooperation by his mother and wife. The
support of his younger brother Chuji and eldest son Saburo was also indispensable in
the commercialization of Ajinomoto. Ikeda’s praise of the efforts of “your family” in
the manufacturing of Ajinomoto testifies to this.
Saburosuke Suzuki II passed away in March 1931. The following month Chuji
Suzuki became the second president of Suzuki Shoten.
parts of it.
Case 11 Kiichiro Toyoda: From
Breakthrough to Incremental Innovations
Abstract This chapter introduces Kiichiro Toyoda, the effective founder of Toyota
Motor Corporation, who established the basis of the “Toyota Production System”
with its Kanban method and Kaizen.
“The Business History of the Toyoda Family’s Spinning

and Weaving Business” (Toyoda-ke Boshoku Jigyo no
Keiei-shi) by Hiroaki Yamazaki
Kiichiro Toyoda, “the effective founder of Toyota Motor Corporation (formally, of

its predecessor, Toyota Motor Co. Ltd),”1 was born in 1894 (Meiji 27), the eldest son
of Sakichi Toyoda, a leading Japanese inventor, in Yoshizu Village, Fuchi County
(present-day Kosai City, Shizuoka Prefecture) on the western shore of Lake Hamana
in Shizuoka Prefecture.
Hiroaki Yamazaki’s book entitled “The Business History of the Toyoda Family’s
Spinning and Weaving Business: From Spinning and Weaving to Spinning and
Weaving Machinery to Automobile” published by Bunshin-do in 2015, provides a
detailed account of the Toyoda family business evolution since Sakichi. Following is
a book review that I contributed to the “Weekly Economist.”2
Numerous books have been written about Sakichi Toyoda’s success in inventing the
automatic loom and becoming “Japan’s loom king.” Also, the process by which Sakichi’s
eldest son, Kiichiro, built on his father’s business and boldly entered the automobile industry
has recently been the subject of much research.
1
Wada, K. (2004). “Toyoda Kiichiro” (Kiichiro Toyoda) in Business History Society of Japan eds
with Yamazaki, Hiroaki ed. in chief, Nihon keieishi no kisochishiki (Basic knowledge on Japanese
business history) (p. 290). Tokyo: Yuhikaku Publishing Co., Ltd.
2
Kikkawa, T. (2015). Shohyo Yamazaki Hiroaki-cho Toyoda-ke boshokujigyo no keieishi,
Boshoku kara boshokki soshite jidosha he (Book review: The business history of the Toyoda
family’s spinning and weaving business—from spinning and weaving to spinning and weaving
machinery to automobile by Hiroaki Yamazaki). Shukan ekonomisuto (The Weekly Economist),
29 September.
© Kreab K.K. 2023 127

128 Case 11 Kiichiro Toyoda: From Breakthrough to Incremental Innovations
However, little has been done to examine how the Toyoda family amassed enormous
wealth during the period, and what type of business development enabled it. Hiroaki
Yamazaki’s “The Business History of the Toyoda Family’s Spinning and Weaving Busi-
ness: From Spinning and Weaving to Spinning and Weaving Machinery to Automobile”
(Bunshin-do, 2015) is a daring attempt to fill this gap.
The book begins with a careful and detailed estimation of the amount of income tax
levied, using as clues the Shoko Shinyoroku [Commercial and Industrial Credit Record],
Nihon Shinshiroku [Japan Gentlemen’s Register], and other documents. It reveals that
Sakichi Toyoda’s annual income, which was 300 yen in 1901, rose to 3000 yen 10 years
later when he established an automatic loom factory. After a surge during the boom years of
World War I, it reached over 120,000 yen in 1928, just before his death in 1930 (Showa 5).
The author makes similar estimates for the incomes of Sakichi’s immediate and extended
family. He successfully recreates the process that led to the Toyoda Family’s becoming one
of the “three major zaibatsu of Chukyo [central Japan]” by showing dramatic changes in
their annual incomes.
Although analysis using tax records has recently been attempted in books such as
“Capital in the Twenty-First Century” by Thomas Piketty [Le Capital au XXIe siècle,
originally published in French in 2013], I do not know of any other work that has examined
the income trends of high-income earners in such a thorough manner and over such a long
period of time, utilizing publicly available tax data. This book will remain in the annals of
research history not only for its richness of content but also for the novelty of its
methodology.
Yamazaki then goes on to detail the rapid growth of the Toyota Automatic Weaving
Factory and the development of Toyota Boshoku, Toyota Boshoku Factory, and Toyota
Automatic Loom Works [present-day Toyota Industries], that made it possible for the
Toyoda family to increase its income. The writer reveals that the Toyota Boshoku Factory
played a major role in the company’s expansion into China, and that the dividends and
executive compensation paid by the group of companies increased the income of the Toyoda
family.
The book’s final section focuses on the financial conditions that enabled Toyota Auto-
matic Loom Works to enter the automobile industry. In the conclusion, Yamazaki points to
three factors: 1) the support of Toyota Boshoku and the Toyota Boshoku Factory; 2) the
backing of the Mitsui zaibatsu led by Mitsui Bank; and 3) the co-financing by large banks in
line with the national policy.
Yamazaki’s “The Business History of the Toyoda Family’s Spinning and Weaving
Business” tells how Kiichiro Toyoda’s entrepreneurial activities, such as those
demonstrated in his foray into the automobile industry, were closely intertwined
with the Toyoda family’s overall business.
Sakichi, Risaburo, and Kiichiro Toyoda
The definitive biography of Kiichiro Toyoda is Kazuo Wada and Tsunehiko Yui’s
“A Biografy of Kiichiro Toyoda” (Toyota Motor Corporation, 2001) [English
version title: Courage and Change - The Life of Kiichiro Toyoda, 2002]. The
following is a review of Kiichiro’s life, based on the biography.
Kiichiro attended Meirin Junior High School, a private school in Aichi Prefec-
ture, and then the Second High School in Sendai before entering the Department of
Mechanical Engineering at the Tokyo Imperial University Faculty of Engineering.
Sakichi, Risaburo, and Kiichiro Toyoda 129
After graduation, he joined Toyota Boshoku in 1921 (Taisho 10). In the same year,
he also became an auditor of the Toyota Boshoku Factory.
In 1909, while Kiichiro was a student at Meirin Junior High School, his father
Sakichi applied for a patent for an “automatic shuttle-changing device” which would
become the key component of automatic looms. This device “automatically replen-
ishes the weft yarn through the push-up mechanism.”3
Sakichi Toyoda established the Toyota Automatic Weaving Factory in 1911, and
in 1914 (Taisho 3) with the construction of the spinning mill, he renamed it the
Toyota Automatic Spinning and Weaving Factory. Then in 1918 he again
reorganized the company and established Toyota Boshoku. Sakichi went on to
build a spinning and weaving factory in Shanghai, establishing the Toyota Boshoku
Factory there in 1921. After graduating from university, Kiichiro began working for
these companies established by his father.
When assessing Kiichiro’s entrepreneurial activities, it is clear that his relation-
ship with his father Sakichi was significant. However, another person was greatly
involved in Kiichiro’s activities—Risaburo Toyoda who joined the Toyoda family in
1915 (Taisho 4) as the husband of Kiichiro’s younger sister Aiko. When Kiichiro
joined Toyota Boshoku, Risaburo was “effectively in charge of the company” 4 as
executive managing director.
Tsunehiko Yui describes how Risaburo became Kiichiro’s brother-in-law. In
1915, Kiichiro was a student at the Second High School.
The marriage proposal for Aiko, then a student at a girls’ school, came up rather abruptly.
Around August of that year [1915] Sakichi Toyoda was visited by Risaburo, the younger
brother of Ichizo Kodama, who had been the head of the cotton department at the Osaka
branch of Mitsui & Co. and whom Sakichi trusted. At the time, Sakichi had witnessed a
dramatic surge in textile exports. So when he met Risaburo who was already well versed in
the textile trade and business, brimming with a proactive spirit, Sakichi came to harbor hopes
that he would be his right-hand man and even his successor (one wonders whether Kiichiro,
still a student at Second High School, was far from being considered successor material).
Risaburo, still single, was also eager to have Aiko as his lifetime spouse, and this was when
the prospect of marriage to Aiko suddenly became a reality. Aiko, a fourth-year student at
Aichi Prefectural First Girls’ School, was initially hesitant about the early marriage proposal,
but Sakichi persuaded her, and eventually in October of the same year, Risaburo became his
son-in-law and joined the Toyoda family. Thus, Risaburo, ten years older, became Kiichiro’s
brother-in-law. 5
3
Wada, K., Yui, T., & Toyota Motor Corporation’s History and Culture Department (Eds.) (2001).
Toyoda Kiichiro den (A biography of Kiichiro Toyoda) (p. 23). Toyota: Toyota Motor Corporation.
4
Ibid., p. 84.
5
Ibid., p. 50.
Development of the Model G Automatic Loom
In 1921, shortly after joining Toyota Boshoku, Kiichiro Toyoda traveled to Europe
and the United States with Risaburo and Aiko. According to Kazuo Wada, “this trip
became a major turning point in Kiichiro Toyoda’s life.” 6
During the trip, Kiichiro followed a separate itinerary from Risaburo and Aiko
and spent several weeks as a factory intern at Platt Bros. & Co. in England, one of the
world’s leading textile machinery manufacturers at the time. Through this experi-
ence, “he deepened his understanding of textile machinery and saw that the high
quality of Platt’s machines was maintained by a careful finishing touch by humans
(i.e., they did not use completely interchangeable parts), but he also had doubts about
the management of the workers on the shop floor. He headed home with these
thoughts in mind.” 7
After returning to Japan, Kiichiro became involved in designing textile machin-
ery, focusing on the development of an automatic loom equipped with an automatic
shuttle changing device. The device had been invented by his father. Kiichiro’s
efforts bore fruit in 1924 with the completion of the Toyota automatic loom (Model
G) featuring nonstop automatic shuttle change, and in 1925 a patent for the invention
was registered in Kiichiro Toyoda’s name. In 1926, Toyota Automatic Loom Works
[present-day Toyota Industries] was established, and Kiichiro became its managing
director.
The patent rights for the Model G automatic loom were transferred to Platt in
1929 under the “Toyota-Platt Agreement.” With this agreement, Toyota Automatic
Loom’s technical superiority over Platt gained global recognition. The Model G
automatic loom was the culmination of Sakichi’s many inventions, but it is undeni-
able that Kiichiro played an important role in its development. Then how did the
rumor that Sakichi alone was responsible for its development take hold? Kazuo
Wada, going back to the time of Sakichi’s death in 1930, explains the circumstances
as follows:
Many people attended the funeral of Sakichi Toyoda, a world-famous inventor born in
Japan. Many newspapers ran major features showcasing various episodes from Sakichi’s
life, and Sakichi was deified. Many of the episodes about Sakichi written later were based on
the newspapers published during this period. In particular, the transfer of his patent rights to
Platt Bros & Co. was widely reported as the definitive achievement of his later years. These
episodes led to the belief by those lacking technological background that the Model G
automatic loom was Sakichi’s achievement. In the climate of glorifying Sakichi, similar
episodes were repeated without deep consideration, and through repetition, they came to be
perceived as facts . . . Even Kiichiro, who knew the truth, would not discuss it until close to
his own death. 8
6
Op. cit., Wada, K. (2004), p. 290.
7
Ibid., p. 290.
8
Op. cit., Wada, K., & Yui, T. (2001), p. 275.
Entry into Automobile Manufacturing 131
Entry into Automobile Manufacturing
Kiichiro returned to Platt Bros. & Co. in England in 1929 (Showa 4) to sign the
“Toyota-Platt Agreement,” and there he saw firsthand that the textile-related indus-
tries were in dire straits. He began to look for alternatives to the textile industry and
chose automobile manufacturing.
Kazuo Wada states that “the question of when Kiichiro Toyoda decided to enter
the automobile business is the most important point in studying his life.” “I would
like to determine the timing by tracing Kiichiro’s own actions closely,” concluding:
“The creation of the prototype engine [based on] Smith Motor was the first time
Kiichiro gave concrete form to his future vision.” This statement refers to Kiichiro’s
1930 entry into the automobile business. Wada describes the Smith Motor as “a
popular engine at the time, which could be attached to an ordinary two-wheeled or
three-wheeled bicycle for transporting goods. Many were imported to Japan in the
1920s for use as a simple means of transportation.”9
The cooperation of Risaburo Toyoda, then president of Toyota Automatic Loom
Works, was crucial to Kiichiro’s successful entry into automobile manufacturing.
Kazuo Wada explains: “Risaburo Toyoda, who, like Kiichiro, had doubts about the
future of the textile industry, cleverly suppressed the opposition of those around him,
and Toyota Motor Corporation was born with the concerted financial support of the
companies in the Toyota group.” 10 Here is Wada’s detailed explanation of that
financial backing:
From a financial standpoint, we must not forget the role played by Toyota Automatic Loom
Works in the establishment of Toyota Motor. In addition, the roles played by Toyota
Boshoku and Toyota Boshoku Factory must also not be forgotten. Toyota Automatic
Loom Works had invested as much as approximately 17 million yen in the automobile
manufacturing business, which grew out of its Automotive Department. One of the reasons
Toyota Automatic Loom Works was able to make such a large investment was due in part to
the abundant funds the company had generated from the manufacture and sale of Model G
automatic looms and spinning machines. At the same time, however, Toyota Automatic
Loom Works issued new shares three times, in January 1934, July 1935, and October 1936,
and these were underwritten mainly by Toyota Boshoku and Toyota Boshoku Factory . . .
Toyota Motor came into being only thanks to the combined financial support of the textile-
related companies that Sakichi, Risaburo, Kiichiro, and others had built over the years . . .
Each of the Toyota-affiliated companies took on the role of a venture capitalist, financially
backing Kiichiro’s efforts to create the new business. 11
In 1933, ten prototype 60 cc motorcycle motors were built, and the Automotive
Department was established within Toyota Automatic Loom Works. 1936 saw the
start of production of AA passenger cars and GA trucks, leading to the establishment
of Toyota Motor Corporation in 1937. Risaburo was appointed president of the
company, and Kiichiro vice president. Kiichiro became president in 1941.
9
For discussion so far, see Ibid., pp. 272–273.
10
Op. cit., Wada, K. (2004), p. 290.
11
Op. cit., Wada, K., & Yui, T. (2001), pp. 347–348.
Toyota’s Labor Dispute and Kiichiro’s Retirement
With the end of World War II, Kiichiro hoped to realize his long-held dream of
manufacturing passenger cars in Japan. However, an unexpected predicament
awaited him.
In the period immediately following the end of the war, the emphasis of the
U.S. Occupation policy toward Japan was to “demilitarize” the country’s economy,
but as the Cold War intensified, the focus shifted to “economic reconstruction”
[of Japan] from around 1947 (Showa 22). To promote Japan’s rapid economic
recovery, it was necessary to end rampant inflation, prevalent since the end of the
war. This task was accomplished by Joseph M. Dodge, who arrived in Japan as a
U.S. envoy in February 1949. The series of measures carried out by Dodge, such as
balancing the national budget, reducing subsidies, and establishing a single
exchange rate of 360 yen to the dollar, were referred to as the “Dodge Line.”
Although the Dodge Line succeeded in curbing inflation, its deflationary effect
triggered a serious recession. Dubbed the “Stability Depression,” it created massive
unemployment and provoked serious labor-management conflicts. In the aftermath
of the Stability Depression, the “Toyota [Labor] Dispute” broke out at Toyota Motor
when deteriorating automobile sales forced the company to lay off employees in
order to restructure its operations. In April 1950, in response to the company’s
streamlining proposal, the labor union went on strike for 2 months, until the outbreak
of the Korean War. Kiichiro, the founding president, took responsibility and
resigned not only as president but also as a board director in June 1950—a surprise
even to the leaders of the union. Kazuo Wada describes the events:
In June 1950, Kiichiro resigned as president of Toyota Motor, ending the dispute. It came
down to Kiichiro leaving the automobile business to which he had devoted his life and soul.
The union leaders said they had never been as shocked as they were at the resignation of
Kiichiro. Even to them, Kiichiro was an embodiment of Toyota Motor itself. The union,
which had stood up to defend their members’ livelihood, respected Kiichiro. Otherwise, his
statue would not have been later erected in front of the corporate headquarters. 12
The extraordinary procurement boom brought on by the Korean War that broke out
in June 1950 ultimately saved the Japanese economy from the recession brought on
by the Dodge Line. The Korean War also prompted the U.S. and Japan to sign a
peace treaty. The San Francisco Peace Treaty of April 1952 ended the ongoing
Allied occupation of Japan following World War II defeat. Many companies man-
aged to free themselves from financial difficulty thanks to demand arising from the
Korean War; Toyota Motor was no exception. The boom restored Toyota Motor and
the company soon began its journey to becoming a global company.
In the March 11, 1951 issue of the Japanese business magazine Diamond, an
article entitled “Toyota Motor Company’s Business Turns Around” describes the
changes in the company’s performance before and after the Korean War as follows:
12
Ibid., pp. 382–383.
The Toyota Production System 133
“The first half of last year was a difficult time for the company. It had to reduce the
workforce and cut back on production. The general cash shortages had caused a sharp
decline in automobile sales.” The article went on to say: “However, after the incident, heavy
demand came in [from abroad]. Domestic demand also returned gradually and sale prices
soared. This was not long after the company had cut back its workforce. This time, the
company encountered an almost dizzying business. It was a complete change of situation.”
The “incident” in the text refers to the Korean War.
Cited in this article, Toyota Motor’s production value was 342.5 million yen in
January 1950, falling to 114.85 million yen in May of the same year but recovering
to 249.52 million yen in June when the Korean War began, and reaching 734.7 mil-
lion yen in January 1951. On the other hand, the number of employees, 8227 in
January 1950, had declined to 5599 in June when the war broke out, not turning
upward even in January 1951, with 5486 employees. Thus, the company’s
per-employee production value had shrunk and then increased significantly—from
42,000 yen/person in January 1950, to 15,000 yen/person in May 1950, to
45,000 yen/person in June 1950, to 134,000 yen/person in January 1951. Toyota
Motor was not the only company to emerge from a business crisis thanks to the
special procurement boom from Korea. The experience was the same for many
others in various industries. We must not forget that the “miraculous recovery” of the
Japanese economy was due in large part to the special procurement boom triggered
by the Korean War.
Ironically, soon after Kiichiro stepped down as president, Toyota Motor emerged
from its financial crisis. Reflecting this comeback, it was “almost certain that he
would return to Toyota Motor by the end of 1951.” However, in the end, Kiichiro’s
return never materialized because “the physical and mental strain that had continued
during and after the war, combined with his long-standing hypertension, took a toll
on Kiichiro’s health.” 13 Kiichiro Toyoda passed away in March 1952. And, as if to
follow him, Risaburo also died in June of the same year.
The Toyota Production System
The so-called Toyota Production System (TPS) was the source of Toyota Motor’s
competitive strength as it embarked on the path to becoming a global company. In
closing this case study, our attention turns to the Toyota Production System that saw
its full-scale development after Kiichiro’s death.
During the period of rapid economic growth, Japanese companies gradually
began to emphasize high-mix, low-volume production, and eventually developed a
production system distinct from their U.S. counterparts, who primarily pursued the
benefits of mass production. A representative example was the Toyota Production
System that replaced the Ford System, a mass production system based on
workflows.
13
Ibid., p. 384.
The fundamental goal of the Toyota Production System is to eliminate excessive

intermediate inventory resulting from mass production. According to Taiichi Ōno,
the creator of the Toyota Production System and vice president of Toyota Motor, the
two pillars of the system are “Just-In-Time” and “Automation.”14 “Creation of flow”
throughout the production process supports these foundational pillars.
“Just-In-Time” means ensuring that in the workflow process of assembling an
automobile the necessary parts arrive on the production line as needed, when needed,
and in the quantity needed.15 To accomplish this, instead of the conventional “earlier
processes supplying later processes [the push system],” one lets “later processes pick
up necessary items from earlier processes when and as needed [the pull system].”
The “kanban” [signboard], synonymous with the Toyota Production System, was
devised as a means of linking different stages of production when implementing the
“later process pick up” [i.e., pull], indicating what and how much is needed by later
processes.
Meanwhile, “Automation” with a human touch [“jidoka” in TPS terminology]
meant automation incorporating human discretion, and in terms of machines, it
meant enabling workers to immediately halt production whenever an abnormality
was detected. As a result of such automation, a single worker would be able to
supervise multiple processes, allowing “multi-process handling,” an important pre-
requisite for “creating flow” in production.
However, even if “multi-process handling” is accomplished in earlier stages, if
there is a large variance in production in the final stage, earlier stages will necessitate
extra people and equipment. Therefore, to “create flow” in the entire production
process, the lot size of the final process must be kept as small as possible to ensure
smooth production. To accomplish this, swift “setup changes,” such as changing the
mold in the press department, would be essential. While the average press setup time
in Toyota Motor’s main plant ranged from 2 to 3 hours in the early 1950s, this timing
was shortened to 15 minutes in 1962, and to 3 minutes in 1971. By speeding up the
time involved in “setup changes,” Toyota Motor was able to smooth out the
production process.
Toyota Motor began developing the Toyota Production System immediately after
the end of the war. It partially introduced the “later process pick up” [the pull system]
as early as 1948, and nearly perfected it in the early 1960s. It fully adopted “Kanban”
in 1962 and established “multi-process handling” in 1963. After the oil crisis, the
Toyota Production System spread to many Japanese companies, beyond the bound-
aries of one company (Toyota) and one industry (automobile). The spread of a
production system able to produce a wide variety of products in small quantities at
low cost contributed greatly to the competitiveness of Japanese products in the
14
Description of the “Toyota production system” based on Ōno, T. (1978). Toyota seisan hoshiki:
Datsukibo no keiei wo mezashite (Toyota production system: Aiming for management without
scale). Tokyo: Diamond, Inc. See especially pp. 5–22; 229.
15
Wada points out that Kiichiro Toyota conceived of “Just in Time” by 1938–1939. For this
discussion, see op. cit., Wada, K., & Yui, T. (2001), pp. 352–353; 362–363.
The Toyota Production System 135
global market. After a period of rapid growth, the global market was entering a
period of low growth around that time.
The Toyota Production System spread around the world with “Kaizen” becoming
a part of English vocabulary. The very meaning of the word “Kaizen,” or improve-
ment, epitomizes incremental innovations.
Kiichiro Toyoda’s entrepreneurial activities, starting with the breakthrough inno-
vation of the Model G automatic loom with his father Sakichi, were passed down in
the form of the “Toyota Production System,” a representative example of incremen-
tal innovation in postwar Japan.
parts of it.
Case 12 Shitagau Noguchi and Yoshisuke
Aikawa: Emergence of New Konzerns
and Foray into the Continent
Abstract This chapter discusses the Emergence of New Konzerns and Foray into
the Asian Continent. It introduces two innovators; Shitagau Noguchi, leader of
Nicchitsu (Japan Nitrogenous Fertilizer) and Yoshisuke Aikawa, the chief of the
Nissan konzern.
New Konzerns
In the 1920s, a period of prolonged recession in Japan, the four major zaibatsu—
Mitsui, Mitsubishi, Sumitomo, and Yasuda—once again restored their dominance
for the first time since the Meiji period. In the 1930s, however, a different group of
companies, collectively known as “new konzerns,” began to thrive.1 A konzern is a
form of monopolistic organization whereby a single holding company aims to
control different industrial sectors through shared ownership in multiple subsidiary
companies.
The five that are often listed as new konzerns are: (1) Nissan (Nihon Sangyo)
konzern led by Yoshisuke Aikawa; (2) Nicchitsu (Japan Nitrogenous Fertilizer)
konzern led by Shitagau Noguchi; (3) Mori konzern led by Nobuteru Mori;
(4) Nisso (Nippon Soda) konzern led by Tomonori Nakano; and (5) Riken
(Rikagaku Kenkyusho) konzern led by Masatoshi Ōkochi. Of these, the core com-
pany of the Mori konzern was Showa Fertilizer, which merged with Nippon Denko
in 1939 (Showa 14) to form Showa Denko.
1
For details of the newly emerging konzerns, see Udagawa, M. (1984). Shinko Zaibatsu (New
zaibatsu) Tokyo: Nikkei Publishing Inc.; Saito, K. (1987). Shinko kontserun riken no kenkyu:
Ōkochi Masatoshi to rikensangyodan (Studies of RIKEN, an emerging konzern: Masatoshi Ōkochi
and RIKEN industrial group). Tokyo: Jichosha; Ōshio, T. (1989). Nitchitsu kontserun no kenkyu
(Studies of Nitchitsu konzern). Tokyo: Nihon Keizai Hyouronsha; Shimotani, M. (1993). Nihon no
keiretsu to kigyo grupu: Sono rekishi to riron (Japanese keiretsu and corporate groups: Their
history and theory). Tokyo: Yuhikaku Publishing Co., Ltd.; and Asajima, S., & Ōshio, T. (1997).
Showa Denko Seiritsushi no kenkyu (Studies of the history of the establishment of Showa Denko).
Tokyo: Nihon Keizai Hyouronsha.
© Kreab K.K. 2023 137

138 Case 12 Shitagau Noguchi and Yoshisuke Aikawa: Emergence of New. . .
Among the new konzerns, Nissan and Nicchitsu stood out in terms of the scale of
their operations. An article, “Nissan Konzern’s Trends” [Nissan konzern’s no Doko]
in the February 11, 1935 issue of the Japanese magazine “Diamond” states: “As a
newly emerging konzern, Nihon Sangyo (Nissan), which is riding the wave of the
extraordinary economic situation, currently has 17 direct subsidiaries, with a nom-
inal capital of 266 million yen and a paid-in capital of 198 million yen. Of the latter,
Nissan’s investment amounts to 144 million yen, accounting for 72.8% of the total
paid-in capital.”
The direct subsidiaries of Nissan konzern listed in the article were: (1) Nihon
Mining, (2) Nihon Tanko, (3) Yamada Tanko, (4) Nissan Gomu, (5) Hitachi
Seisakusho [Hitachi Works], (6) Hitachi Denryoku, (7) Osaka Tekkosho, (8) Nissan
Jidosha [Nissan Motor], (9) Kyodo Gyogyo, (10) Nihon Godo Kosen, (11) Nihon
Shokuryo Kogyo, (12) Nihon Hogei, (13) Chuo Doboku, (14) Nissan Kisen,
(15) Teikoku Dozai Kogyo, (16) Nanbei Suisan, and (17) Godo Tochi.
Meanwhile, an article, “Anatomy of Nicchitsu Konzern” [Nicchitsu Konzern no
Kaibo] in the July 1, 1938 issue of “Diamond” states that “Nicchitsu is the second
largest konzern after Mangyo [Manchuria Heavy Industries Development Co.,
reorganized from Nihon Sangyo]. The number of companies under its control is
13 directly controlled and 18 indirectly controlled, with a total capitalization of over
600 million yen and total assets of 830 million yen.”
In addition to the core company, Japan Nitrogenous Fertilizer, the article listed
the following 13 subsidiaries as direct affiliates of Nicchitsu konzern: (1) Chosen
Chisso, (2) Choshinko [Changjin River] Suiden, (3) Chosen Coal Industries,
(4) Nicchitsu Shoken, (5) Nicchitsu Kogyo, (6) Tanpo [Danpung] Tetsudo, (7) Cho-
sen Kogyo Kaihatsu, (8) Shinko [Sinheung] Tetsudo, (9) Chosen Biru, (10) Nicchitsu
Kayaku, (11) Chochitsu Kayaku, (12) Chosen Suisan Kogyo, and (13) Chosen
Maito. The indirect subsidiary companies included Asahi Bemberg Silk Yarn, later
becoming Asahi Kasei.
These emerging konzerns behaved differently from the established zaibatsu in
that they raised funds through the stock market, developed businesses centered on
the heavy chemical industry, and consisted mainly of operating companies with no
trading companies or banks. Nissan konzern aggressively expanded into Manchuria
(northeastern China) and Nicchitsu konzern into the Korean Peninsula. Although
their overseas assets were almost completely wiped out with Japan’s defeat in World
War II, many blue-chip companies that drove Japan’s postwar economic growth
emerged from their direct and indirect subsidiaries. In this case study, we will focus
on Shitagau Noguchi who created Nicchitsu konzern, and Yoshisuke Aikawa who
built the Nissan konzern.
Brief Biography of Shitagau Noguchi 139
Brief Biography of Shitagau Noguchi
Shitagau Noguchi was born in Kanazawa in 1873 (Meiji 6). After graduating from
the Department of Electrical Engineering at the Imperial University (today’s the
University of Tokyo), he joined Koriyama Lighting Company in Fukushima Pre-
fecture as a chief engineer. He then worked at the Japanese branch of the German
electrical manufacturer Siemens, and at Azumi Electric in Nagano Prefecture before
founding Sogi Electric in Kagoshima Prefecture in 1906 and becoming its president.
The establishment of Sogi Electric marked Shitagau’s start as an entrepreneur. At
that time, hydroelectric power generation was still mainly based on waterways, not
dams. This created surplus electricity during summer, which in mainland Japan starts
with the rainy season in June and ends with the typhoon season around August-
September. As air conditioners were not yet common at the time, electricity demand
typically peaked during winter due to demand for heating.
To solve the power surplus problem, Yasuzaemon Matsunaga (discussed earlier
in Case 9) adopted a system combining hydroelectric and thermal power generation.
Shitagau devised a different solution, the so-called electro-chemical method, using
surplus energy to material of the chemical industry. This utilization of surplus energy
was an excellent business model in Japan at the time. Noguchi began with carbide
manufacturing, then expanded his business by introducing foreign technologies such
as the manufacturing of lime nitrogen and ammonium sulfate, as well as Bemberg
(artificial) silk. Upon his entry into the carbide business, Noguchi established Nihon
Carbide Shokai that merged with Sogi Electric in 1908 and was renamed Japan
Nitrogenous Fertilizer Company. That same year, he started manufacturing carbide.
Noguchi’s decision to build a carbide plant in Minamata, Kumamoto Prefecture,
was the result of a village-wide campaign to attract the plant. The original candidate
site was Komenotsu, the northernmost village in Kagoshima Prefecture. But
Minamata campaigners enthusiastically presented favorable conditions, promising:
“If Minamata is considered more remote than Komenotsu, we will donate the electric
lines and poles to bridge the gap. We will renovate the port to a level superior to that
of Komenotsu. We will keep the land price for the factory no more expensive than
the average price, and if it rises in price, the village will pay the difference.”2 This
factory was the predecessor of the Minamata factory of Chisso Corporation. After
World War II, the factory became the site of globally notorious industrial pollution,
afflicting many local residents with Minamata Disease—a sad twist of fate consid-
ering that the locals had originally welcomed the plant.
Noguchi steadily introduced foreign technologies and began manufacturing lime
nitrogen, ammonium sulfate, and artificial silk. In 1923 he built an ammonium
2
Nakamura, S. (1978). Noguchi Shitagau: Kyodai denryokukagaku konbinato no kensetsu
(Shitagau Noguchi: The construction of large-scale electric and chemical complexes). In
H. Morikawa, S. Nakamura, K. Maeda, K. Sugiyama, & K. Ishikawa (Eds.), Nihon no kigyoka
(3) showa-hen (Japanese entrepreneurs 3: The Showa edition) (p. 49). Tokyo: Yuhikaku Publish-
ing Co., Ltd.
sulfate plant in Nobeoka, Miyazaki Prefecture. Importantly, Noguchi introduced the

latest Haber-Bosch process from Germany and succeeded in manufacturing syn-
thetic ammonium sulfate in Japan ahead of Mitsui, Mitsubishi, and Sumitomo.
Historian Seishi Nakamura comments:
The Haber-Bosch process was made available to Japanese nationals in Taisho 6 [in 1917
during World War I] under the Wartime Law on Industrial Property, and in Taisho 10 the
license was sold to the Toyo Nitrogen Association, jointly formed by Mitsui, Mitsubishi,
Sumitomo, and others. However, the association, representing the interests of established
zaibatsu, was interested in commercial profit, but was averse to risk and unwilling to engage
in industrial manufacture.
Noguchi’s bold entry into synthetic [ammonium sulfate] manufacturing during the post-
WWI recession contrasted sharply with the reluctant stance of the established zaibatsu that
were hesitant about the synthetic ammonium sulfate industry. Noguchi’s actions can be
termed those of a groundbreaking entrepreneur. Furthermore, the shift to synthetic
manufacturing enabled a significant reduction in cost, including the cost of raw materials,
compared with existing conversion methods. From the end of the Taisho era to the beginning
of the Showa era, Nicchitsu was able to compete with foreign manufacturers of ammonium
sulfate and maintain a steady performance even under extremely difficult conditions, such as
the dumping of foreign-made ammonium sulfate and the collapse of market prices to 60 yen
per ton. 3
Seishi Nakamura also describes Shitagau Noguchi’s foray into the artificial silk
industry:
Full of progressive spirit, Noguchi subsequently made a foray into the Bemberg synthetic
silk manufacturing. As a result of his success in synthesizing ammonia, he chose Bemberg
synthetic silk as it made extensive use of ammonia. Noguchi acquired the Bemberg patent in
Showa 3 (1928), established Nippon Bemberg Silk Thread Company the following year, and
built a silk factory next to the ammonia factory in Nobeoka that he completed in April of
Showa 6. . . . In Showa 8, Asahi Silk Weaving, Nihon Bemberg Silk Thread, and an
ammonia factory in Nobeoka (Nobeoka Ammonia Silk Yarn Company) merged to form a
large artificial silk company called Asahi Bemberg Silk Thread Company.4
Asahi Bemberg Silk Thread Company would eventually become today’s Asahi
Kasei.
Noteworthy among Noguchi’s innovative entrepreneurial activities was his move
into the Korean Peninsula, a Japanese colony since annexation by Japan in 1910
(Meiji 43). Noguchi developed hydroelectric power and built an electrochemical
complex there. The Korean peninsula has a mountain range along its eastern side,
and to the west a relatively gentle slope down to the Yellow Sea. Several large rivers
flow on that slope. In dam-style hydropower generation, which became technically
feasible around that time, power generation capacity is determined by both the
amount of water and the steepness of the waterfall. The western slope was suitable
for the available water, while the eastern slope was ideal for the fall. This dilemma
3
Ibid., p. 56.
4
Asahi Silk Weaving is a company established by Shitagau Noguchi with Matazo Kita in 1922. As
of 1933, Kita was no longer involved in the business management of Asahi Silk Weaving.
Ibid., p. 59.
Brief Biography of Shitagau Noguchi 141
was difficult, but Noguchi resolved it by creating tunnels under the eastern mountain
range. A dam was constructed on the western slope to secure a sufficient volume of
water, then the water was transported by the tunnels to the eastern side, where it was
used for electricity generation, taking advantage of the fall.
Noguchi also built large-scale dams on the Pujon River (in Japanese: Fusenko),
Changjin River (Choshinko), and the Hochon River (Kyosenko), all tributaries of the
Yalu River (Oryokuko) located on the border of Korea and Manchuria (northeastern
China) and flowing westward. Then he generated electricity on the eastern slope and
developed a large electrochemical complex in Hungnam (present-day Hamhung) on
the east coast.
However, his hydroelectric development on the Korean peninsula led to a feud
with Mitsubishi. Seishi Nakamura explains the background:
As for hydroelectric development in Korea, Mitsubishi had already applied for permission
for water rights for the Pujeon and the Changjin Rivers. However, the Governor-General’s
Office5 also recognized Noguchi, then an enthusiastic budding entrepreneur, and granted
water rights of the Pujon River to Noguchi and those of the Changjin River to Mitsubishi. 6
The water rights of the Changjin River had been approved for Mitsubishi, and Noguchi had
no control over them. But, despite having water rights, Mitsubishi showed no sign of starting
development, and as they missed deadlines the project was extended through annual renewal
procedures. The Governor-General’s Office was calling for rapid power development
throughout Korea, and Governor-General Kazushige Ugaki repeatedly urged Mitsubishi to
start development and pressed the company to return the water rights if it had no intention to
do so. Ultimately Mitsubishi was unable to decide and had to return the water rights.
Noguchi took advantage of this opportunity and immediately applied to Ugaki for the
transfer of the Changjin River water rights.
However, even after obtaining the water rights, financing posed another hurdle. Since its
founding, Nicchitsu had consistently benefited from Mitsubishi’s financial support . . . The
Changjin River project would be equivalent to swiping Mitsubishi’s work, so the company
could not expect financial assistance. In fact, at the Nicchitsu board of directors’ meeting, the
plan was met with fierce opposition from Mitsubishi-linked executives. Noguchi, however,
did not give up. The question was whether to opt for continued assistance from Mitsubishi or
to press ahead with the Changjin River development. He finally decided to cut ties with
Mitsubishi, his longtime backer, repay debts owed to Mitsubishi, and move forward with the
Changjin River project. To replace Mitsubishi, the Industrial Bank of Japan was enlisted, as
well as the Bank of Chosen and the Chosen Colonial Bank, through the arrangement of
Governor-General Ugaki. 7
In 1944 (Showa 19), the year before the end of World War II, Noguchi’s work on the
Yalu River led to the completion of the Suiho (Korean: Supung; Chinese: Shuifeng)
Dam and Suiho Power Plant, which at the time had world-class 700,000 kW
generating capacity.
Noguchi’s speedy decisions to introduce new technologies, including nitrogen,
ammonia, and artificial silk manufacturing from Germany and elsewhere, stood out
5
Governor-General of Korea was an organization established by the government of Japan to control
Korea, which was colonized after the annexation.
6
Op. cit., Nakamura, S. (1978), p. 64.
7
Ibid., pp. 70–71.
and placed Nicchitsu well ahead of other companies. Noguchi also pursued merits of
scale by building a large industrial complex on the Korean peninsula; its size
exceeded even those on the Japanese mainland. In addition, he pursued economy
of scope by developing an electrochemical industry from surplus electricity. These
activities embodied economies of speed, scale, and scope, deemed the source of
competitive success. Noguchi’s entrepreneurial activities culminated in the estab-
lishment of Japan Nitrogenous Fertilizer Co. Along with Nissan konzern, Nicchitsu
konzern became one of the leaders among emerging konzerns.
Noguchi died in 1944, just before the end of World War II. Nicchitsu lost its
factories and power plants on the Korean peninsula following Japan’s defeat. The
company returned to Minamata and restarted in 1950 as New Japan Nitrogenous
Fertilizer Co. In 1965, the company changed its name to Chisso Corporation.
Brief Biography of Yoshisuke Aikawa
Yoshisuke Aikawa, the chief of the Nissan konzern, was born in Yamaguchi
Prefecture in 1880. Although he graduated from the prestigious Department
of Mechanical Engineering at Tokyo Imperial University (now the University of
Tokyo), he enlisted as a factory worker at Shibaura Seisakusho (predecessor of
Toshiba). While his former classmates were earning around 45 yen a month as
engineers in government offices and large companies, Aikawa started his career with
a daily wage of 48 sen (100 sen = 1 yen). Historian Masaru Udagawa attributes this
start to the following words of U.S. businessman Andrew Carnegie, which Aikawa
encountered during his school days: “Boss your boss just as soon as you can; try it on
early. There is nothing he will like so well if he is the right kind of boss; if he is not,
he is not the man for you to remain with—leave him whenever you can, even at a
present sacrifice, and find one capable of discerning genius” (Andrew Carnegie, The
Empire of Business, 1913). Deeply impressed, Aikawa decided that he needed to
gain hands-on experience on the factory floor.8
During his 2 years as a factory worker at Shibaura Seisakusho, Aikawa worked in
sections handling finishing, machinery, manufacturing, sheet metal, assembly, and
casting processes. “He was able to experience a variety of sections in such a short
period of time because Shibaura Seisakusho gave him special considerations after
his identity was exposed in the latter half of his first year there.” 9 “Identity” here
refers to family connections. Aikawa’s maternal great-uncle was (Japanese states-
man) Kaoru Inoue, and the Aikawa family had close ties to the Mitsui, Kuhara,
Furukawa, and Fujita families.
8
See Udagawa, M. (2017). Nissan no sogyosha Aikawa Yoshisuke (Nissan founder Yoshisuke
Aikawa) (pp. 26–27). Tokyo: Yoshikawa Kobunkan.
9
Ibid, p. 27.
Brief Biography of Yoshisuke Aikawa 143
Yoshisuke, gaining experience with a variety of work at Shibaura Seisakusho,

traveled to the United States in 1905.
Upon his arrival in New York, with an introduction from Kaoru Inoue, Aikawa looked for
employment through the local Mitsui & Co. branch office. Aikawa wanted to work at a
factory where he could learn the techniques of steel pipe manufacturing and malleable cast
iron manufacturing. He believed that the development and improvement of manufacturing
technologies for steel pipes and malleable cast iron, foundational materials, were essential
for the growth of Japan’s machine industry. At the time, however, all steel pipe manufactur-
ing companies in the U.S. kept techniques strictly confidential, so he looked for a malleable
iron manufacturer. In January 1906 he was hired as an apprentice at Gould-Coupler’s main
plant in the suburbs of Buffalo with a salary of $5 per week, and went to work at the plant
while renting a room at the manager’s house. 10
Yoshisuke returned to Japan in 1907 and immediately began preparations to estab-

lish a company for manufacturing malleable cast iron. Three years later, he founded
Tobata Casting Company. About the company, Masaru Udagawa wrote:
In June of Meiji 43 [1910] Aikawa established Tobata Casting Co. in Tobata, Kyushu, with
funds and other forms of assistance from the Fujita (Tokyo), Kaijima, Kuhara, and Mitsui
families, arranged through Kaoru Inoue. This was the start of his career as a business
manager. [. . .] Tobata Casting, partly because it was the country’s first producer of black-
heart malleable cast iron, achieved financial independence at the outbreak of World War I
and afterwards grew rapidly.11
The contributing factor in Tobata Casting’s improved performance was its prompt
introduction of electric furnaces, starting in 1921 (Taisho 10). Even in Europe and
the United States, these furnaces were not yet widely used. Consequently, Tobata
Casting’s international competitiveness grew as the company improved quality and
lowered costs at the same time. Tobata’s products became “the first among Japan’s
steel-related products to [successfully] enter the U.S. and European markets.” 12
After putting Tobata Casting on track, Yoshisuke became involved in the man-
agement of businesses owned by his relatives. In 1922 Aikawa established Kyoritsu
Kigyo, which he described as a “konzern-like supreme organization for shareholding
and management,” 13 to oversee these additional businesses. Although Kyoritsu
Kigyo lacked funds and never became fully functional, Aikawa learned some
important lessons that later helped him in the formation of Nissan konzern. As
Masaru Udagawa explains:
The management of a konzern centered around Kyoritsu Kigyo did not achieve its intended
purpose. However, through the management of Kyoritsu, Aikawa learned [. . .] two business
models that enabled him to form the Nissan group. One of them is that while the
10
Ibid., p. 29.
11
Udagawa, M. (1979). Nissan kontserun no tenkai: Shinzoku grupu no keiei katudo no shutaisei
(The development of the Nissan konzern: A compilation of the management activity of the family
group). In op. cit., K. Nakagawa, H. Morikawa, & T. Yui (Eds.), The enlarged edition of basic
knowledge of modern Japanese business history (p. 205).
12
Op. cit., Udagawa, M. (2017), p. 36.
13
Op. cit., Udagawa, M. (1979), p. 205.
management of a konzern with a holding company at its top is an effective governance

structure for a group of companies, if the holding company itself does not have the ability to
raise capital it will not be able to fully exercise its supervisory and managerial roles over its
subsidiaries, not to mention diversify its operations into growth industries. Therefore,
Aikawa learned that to successfully manage a konzern centered on the heavy chemical
industry requiring a large amount of capital, it is essential to move away from a closed
holding company based on specific families and relatives and shift to a public holding
company that can raise funds directly on the stock market. Another thing he learned was the
potential of corporate restructuring through mergers and acquisitions. Kyoritsu had investi-
gated 40 to 50 companies as acquisition targets. Most of these companies had declined due to
managerial moral hazard. Aikawa believed that a public holding company system would be
an effective means of developing a corporate revitalization business. Regardless of the
available funds on hand, a public holding company absorbs and acquires the target company
by exchanging its own shares for those of the merged company. Aikawa came to realize that
by sending out managers with a sense of fiduciary duty to shareholders, he could pave the
way for the revitalization of the acquired company (Tetsuji Okazaki, “History of Holding
Companies”14).15
Yoshisuke used his experience at Kyoritsu to form Nissan konzern. The first step in
this process was in 1927 (Showa 2) when he took over the management of Kuhara
Mining, then on the verge of bankruptcy: Aikawa, who had secured a lender and
averted the bankruptcy of Kuhara Mining,
decided to use his experience at Kyoritsu, planning to fundamentally reorganize the entire
Kuhara group and establish a management structure consisting of the head office organiza-
tion and the business division. Based on this plan, in December of Showa 3 [1928], Kuhara
Mining was reorganized as a holding company and renamed Nihon Sangyo (hereafter
Nissan). Nissan then went public. Another goal of the reorganization was to open the way
for the holding company itself to go public, absorbing funds from the general public to raise
capital.16
The Kuhara zaibatsu was now transformed into the Nissan konzern, growing
dramatically with its affiliated companies during the economic upturn triggered by
the reimposition of the gold export ban in 1931. Masaru Udagawa explains the
mechanism:
In Showa 8 [1933], Nissan acquired a huge amount of money by offering to the market, with
a premium, some of the shares of Nihon Mining and Hitachi that were previously held only
by group companies. The public offering of subsidiary company shares helped Nissan
decrease the costs associated with controlling these companies, and the premium earnings
came to constitute an important financial resource for Nissan. From then on, the income from
the stock premium would account for a significant portion of the company’s earnings each
fiscal year. And with the new funds and increased dividends from subsidiaries, starting in
Showa 9, Nissan made major inroads into diversified businesses.17
14
Okazaki, T. (1999). Mochikabugaisha no rekishi: Zaibatsu to kigyotochi (The history of holding
companies: Zaibatsu and corporate governance). Tokyo: Chikumashobo Ltd.
15
Op. cit., Udagawa, M. (2017), pp. 66–67.
16
Op. cit., Udagawa, M. (1979), p. 205.
17
Ibid., p. 206. The expression “premium” in the quote refers to the surplus when a shares are issued
above par value. Note that par value stocks were abolished in 2001 when the Commercial Code was
revised.
Brief Biography of Yoshisuke Aikawa 145
Nissan’s rapid growth, achieved through its konzern operations and the share
issuances at a premium, quickly made it the third-largest company group in Japan,
after Mitsui and Mitsubishi.
Yoshisuke, obtaining funds through the premium share issuance of subsidiary
companies, used the money to support full-scale entry into the automobile sector, a
goal that he had been pursuing for some time. In 1931 he had already purchased a
stake in DAT Motors and taken control of the company; in 1933 he established the
Automobile Department at Tobata Casting, renamed Automobile Manufacturing
Co. before being renamed again in 1934 as Nissan Motor Co.
Yoshisuke’s plan was to localize automobile production in Japan. It would begin
with “the expansion of the auto parts business and the mass production of the
compact car Datsun,” aiming eventually to “establish an automobile industry in
‘Manchukuo.’”18 In 1935, the Nissan Motor Yokohama Plant, equipped with a
conveyor belt system, was completed as a mass production site for the Datsun.
“In November 1937 (Showa 12), Nihon Sangyo, the core company of Nissan
konzern, Japan’s third largest business group, suddenly announced that it would
relocate to a site affiliated with the South Manchurian Railway (Manchuria Railway)
in the capital of Manchuria (Xinjing), change its name to Manchuria Heavy Indus-
tries Co. (Mangyo), and become the executing agency for the country’s ‘Five-Year
Manchurian Industrial Development Plan.’ Then, in December of the following year,
with the abolition of extraterritoriality in Manchukuo, Mangyo became a Manchu-
kuo corporation, and its capital base doubled to 440 million yen. The increase was
funded by the Manchukuo government, and the company became aligned with
Japan’s national policy.” 19
Why did Yoshisuke decide to relocate Nissan konzern to Manchuria, a move that
stunned the Japanese public? Certainly the tightening of the government’s control
over the economy and the stagnation of the stock market had a negative effect on the
domestic business environment. The incentives offered by the Japanese and Man-
chukuo governments for companies to expand their operations into Manchuria likely
also played a role. However, Yoshisuke’s decision was fundamentally based on the
dream he had for the new land of Manchuria. This is evidenced in Nissan’s
localization plan for automobile production that treated Manchukuo as its target
location.
However, as the Sino-Japanese War grew into a full-scale conflict, with Japan
struggling in the battlefield, Yoshisuke’s plan ended as “an unfulfilled dream.”
Japan’s defeat in World War II resulted in the loss of all Nissan assets in Manchuria,
and the postwar breakup of the zaibatsu led to the dissolution of the Nissan konzern
itself.
After the war, Yoshisuke retired from the frontline of business, but at the request
of the government, became president of Teikoku Oil and chairman of Japan Petro-
leum Resources Development, two state-sponsored companies. In 1953 he became a
18
See op. cit., Udagawa, M. (2017), p. 41.
19
Ibid., p. 100.
member of the House of Councilors, and in 1956 formed Japan SME Political
Federation to focus on promoting small and medium-sized businesses. Yoshisuke
Aikawa died in 1967.
“Yoshisuke Aikawa, Founder of Nissan” by Masaru

Udagawa
Masaru Udagawa has written an excellent biography of Aikawa, “Nissan founder

Yoshisuke Aikawa” [Nissan no Sogyosha Aikawa Yoshisuke] (Yoshikawa
Kobunkan, 2017), quoted in the previous section. I contributed a review of the
biography to the Weekly Economist20 and share its contents here.
“Yoshisuke Aikawa, Founder of Nissan” by Masaru Udagawa (Yoshikawa Kobunkan,
2017), is a critical biography. It is a compilation of research findings by Udagawa, a leading
researcher on Nissan konzern and Nissan Motor. To avoid duplication with his earlier
published works, Utagawa describes in detail Aikawa’s activities as a social entrepreneur
after World War II. His social endeavors have not been given much attention in the past and
Utagawa offers an in-depth look at the innovative nature of Aikawa’s activities.
Aikawa’s actions as a social entrepreneur can be seen in three areas: 1) power source
development, 2) road development, and 3) support for small- and medium-sized businesses.
Power source development led to the establishment of Electric Power Development Com-
pany (J-Power), and road development led to the establishment of the Japan Highway Public
Corporation. Eventually, Aikawa’s interests focused on providing support for SMEs, and in
1956, he formed a new political party, SME Political League (Chusho-kigyo Seiji Renmei/
Chuseiren). Aikawa, the first president of Chuseiren, maintained that self-interested behavior
and the resulting excessive competition was “endemic to SMEs,” and called for “collective
action” to eradicate them. The 1957 passage of the Small and Medium-Sized Business
Association Law was the fruit of his efforts.
Utagawa organizes Aikawa’s business operations using Schumpeter’s five categories of
innovation: First, the production of malleable iron products corresponds to Schumpeter’s
“production of new products and new quality products”; Second, the introduction of an
electric furnace for malleable cast iron production and the introduction of a conveyor belt
system for automobile production correspond to Schumpeter’s “introduction of new pro-
duction methods”; Third, the cultivation of the European and U.S. markets for malleable iron
products (especially iron pipe fittings) corresponds to “development of new markets”;
Fourth, the exploitation of underground mineral resources in the “Five-Year Manchurian
Industrial Development Plan” corresponds to “a new source of raw material supply”; and
Fifth, the creation of a public stock company and the establishment of a cross-sectional
corporate group structure (konzern) and the introduction of a venture capitalist system
correspond to Schumpeter’s “establishment of a new industry and management
organization.”
Aikawa’s life can be likened to four hiking trails, full of ups and downs with uncharted
paths: (1) the establishment of Tobata Casting and Nihon Sangyo, (2) the formation of
Nissan konzern, (3) the management of Mangyo konzern (Manchuria Heavy Industries
20
Kikkawa, T. (2017). Shohyo Udagawa Masaru-cho Nissan no sogyosha Aikawa Yoshisuke
(Book review: Nissan founder Yoshisuke Aikawa by Masaru Udagawa). Shukan ekonomisuto
(The Weekly Economist), 18 July.
Expansion into the Asian Continent 147
Development Co.), and (4) activities as a social entrepreneur. In each of these trails,
Aikawa’s footprints were conspicuous for their innovative nature.
Of the four trails, Aikawa succeeded in (1) and (2) but failed to achieve significant results
in (3) and (4). Utagawa, however, attributes this failure to being “too far ahead of his time
and too visionary” (p. 223). For example, the integrated development method adopted by
Aikawa in Mangyo was carried over to the development of China’s northeastern region after
World War II.
Masaru Udagawa’s discussion showing the innovative nature of Aikawa’s entrepre-

neurship by relating it to Schumpeter’s theory of innovation is fascinating. However,
it should be noted that Aikawa’s overall accomplishment was closer to “creation of a
new equilibrium” than “destruction of an equilibrium.” The production of malleable
iron products, the introduction of electric furnaces and conveyor belts, the cultiva-
tion of European and U.S. markets, the creation of public stock companies, the
establishment of konzerns, and the introduction of the venture capital system were
not, in themselves, breakthrough innovations. Thus, Aikawa was an incremental
innovator.
As an incremental innovator, Shitagau Noguchi was similar. The industrial-scale
manufacturing of lime nitrogen, ammonium sulfate, and artificial silk was the
outcome of his introduction into Japan of foreign technologies. Similarly, the
large-scale hydroelectric development on the Korean peninsula was not the “world’s
first” attempt. Noguchi, too, was an incremental innovator. This in no way dimin-
ishes the innovative nature of Aikawa’s and Noguchi’s entrepreneurship. They were
noteworthy innovators both in terms of scale of their operations and audacity in
taking on new challenges.
Expansion into the Asian Continent
In Case 12, we focused on Shitagau Noguchi, the creator of Nicchitsu konzern, and
on Yoshisuke Aikawa, the creator of the Nissan konzern. New konzerns such as
Nicchitsu and Nissan were unsuccessful in the long run. During the war and after
1937 (Showa 12), many new konzerns faced difficulty due to sluggish stock markets,
inability to obtain materials, and competition with established zaibatsu, forcing them
to either dismantle or reorganize. The loss of large-scale investments made by
Nicchitsu on the Korean Peninsula and by Nissan in Manchuria due to Japan’s
defeat in WWII also hastened their downfall.21
21
As pointed out by Udagawa, Masaru and Sue, Kunio, the hegemony of the “Four Zaibatsu,”
namely Mitsui, Mitsubishi, Sumitomo, and Yasuda, also stemmed from the relationship with the
new konzerns. See op. cit., Udagawa, M. (1984). (New Zaibatsu) (p. 9).; Sue, K. (2000).
Manshujihen sono boppatsugen’in wo saguru: Senkyuhyakunijunendai ni okeru zaibatsushihon
no henseigae to jukagakukogyoka (To search of the cause of the outbreak of the Manchurian
Incident: The reorganization of financial conglomerate capital and heavy chemical industrializa-
tion in the 1920s) Nihondaigaku keizaigakubu keizaikagaku kenkyujo-kiyo (The Journal of
Research Institute of Economic Science, No. 29), p. 300.
Nevertheless, their daring foray into the Asian continent should be recognized as
a manifestation of innovative entrepreneurship. Major risk was inherent in such
moves, but the emergence of these entrepreneurs who made large-scale investments
despite the risk symbolized the dynamism of the Japanese economy, which contin-
ued to achieve long-term growth nearly until the final decades of the twentieth
century.
As Japan’s sphere of influence expanded to the Asian continent in the period
leading to World War II, the activities of Japanese entrepreneurs extended to the
continent. Noguchi of Japan Nitrogenous Fertilizer built one of the world’s largest
dam-type hydroelectric power plants in the northern part of the Korean Peninsula,
creating a major electrochemical complex. Aikawa of Nihon Sangyo gradually
shifted his focus from Japan to Manchuria (northeastern China) and devoted himself
to developing Manchuria.
Furthermore, Sazo Idemitsu, the oil merchant to be discussed in Case 13,
expanded his branch network not only in the Japanese-controlled territories of
Korea, Taiwan, and Manchuria, but also throughout China. The assets that Noguchi,
Aikawa, and Idemitsu had built up on the Asian continent were lost with Japan’s
defeat in the war. While Noguchi died at the end of the war and Aikawa withdrew
from corporate management, Idemitsu remained on the frontline, quickly regaining
his footing in the devastating aftermath of Japan’s defeat. Idemitsu advocated the
policy of “no layoffs,” and transformed Idemitsu Kosan into the “hero of native oil
companies.”
parts of it.
Case 13 Sazo Idemitsu: From “Oil
Merchant of the Continent” to “Hero
of Native Oil Companies”
Abstract This chapter introduces Sazo Idemitsu, who established Idemitsu Kosan
as the number one native oil company in Japan, and its overseas expansion and
growth.
The Miracle of the Nissho-Maru
Sazo Idemitsu was another businessman who boldly ventured out of Japan before
World War II, but whose business was badly damaged by Japan’s defeat.1 The defeat
was a turning point as he drastically transformed his business from “oil merchant of
the continent” to “hero of native [Japanese] oil companies.”
In 1953 (Showa 28), only eight years after the defeat that had reduced all major
Japanese cities to ashes, Idemitsu Kosan, led by Sazo Idemitsu, drew international
attention by sending its ship Nissho-Maru II to Iran to purchase a large quantity of oil
for transport to Japan. Iran was then involved in a dispute with Britain over the
nationalization of the Anglo-Iranian Oil Company, and the “Nissho-Maru Incident”
caught the world’s attention as it undercut the boycott of Iranian oil by the world’s
oil majors. The “Brief History of Idemitsu” published by Idemitsu Kosan in 1964,
describes the events:
This was a daring move to directly link Iran, the world’s leading oil producer, with Japan, a
major oil consumer. As a result, the price of domestic oil products fell by tens of billions of
yen a year, providing a tremendous benefit to consumers. The British Anglo-Iranian Oil
company (AIOC) filed a lawsuit requesting a provisional injunction for the seizure of oil
products shipped by Nissho-Maru to Japan, but the Tokyo District Court and the Tokyo
High Court refused it, ending in Idemitsu’s triumph. His resolve not to yield to British
coercion gave confidence and courage to the general public whose spirit was low as a result
of Japan’s defeat in the war (p. 46).
For the Japanese people, devastated by the war, Idemitsu’s “Nissho-Maru Incident”
was truly a miraculous event as a triumphant, head-on confrontation with the United
1
For details of Sazo Idemitsu, see Kikkawa, T. (2012b). Idemitsu Sazo: Ogon no dorei tarunakare
(Sazo Idemitsu: Don’t be a slave to gold). Kyoto: Minervashobo.
© Kreab K.K. 2023 149

150 Case 13 Sazo Idemitsu: From “Oil Merchant of the Continent” to “Hero. . .
Kingdom, a core country of the Allied Powers. The miracle of Nissho-Maru,

catapulted Sazo Idemitsu to prominence as a highly popular business leader in
postwar Japan. It also served as a catalyst for the Japanese economy’s recovery,
namely, the rapid economic growth that began in the mid-1950s.
Idemitsu’s Overseas Expansion
Challenging powerful entities was a way of life for Idemitsu throughout his life,
beginning even before World War II.
Born in 1885 (Meiji 18) in Akama Village, Munakata County (present-day
Akama, Munakata City), Fukuoka Prefecture, Sazo Idemitsu was taught by Renkichi
Uchiike at Kobe Higher Commercial School (Kobe Kosho, present-day Kobe
University,), which Sazo entered in 1905. Uchiike told him about the social nature
of commerce, meaning “speculative merchants would become unnecessary in the
future, and that only merchants who would serve as distributors between producers
and consumers, fulfilling their social responsibility, would survive.2” Idemitsu was
deeply moved by this lesson, and later came to make it his business philosophy to
place the highest priority on consumers’ interests by advocating ideas such as “from
producer to consumer,” “large-area retailing establishing directly run stores over a
wide area, eliminating the middlemen,” and “consumer-orientation.”
In 1911, two years after graduating from Kobe Kosho, Idemitsu established his
own company, Idemitsu Shokai, selling petroleum products. Idemitsu Shokai was
financed by Jutaro Hida, a wealthy Awaji resident with whom Idemitsu became
acquainted during his time at Kobe Kosho.
Idemitsu Shokai, established just before World War I, subsequently focused on
Japanese-controlled East Asia and surrounding areas, implementing Idemitsu’s
policy of “large-area retailing.” Idemitsu Shokai, founded in June 1911, was inte-
grated into an affiliate company, Idemitsu Kosan, established in March 1940 (Showa
15), ceasing to exist in November 1947. During this period, Idemitsu continuously
served as the leader of Idemitsu Shokai. The 37 years of Idemitsu Shokai’s history
can be divided into the following periods in terms of their overseas business
evolution:
1. From 1911, when Idemitsu Shokai was founded, through the opening of its
Dalian office in 1916, to 1918 (Taisho 7) when Idemitsu Shokai established a
foothold in “Manchuria” (northeastern China. The term “Manchuria” is employed
here as the name used by Idemitsu Shokai at that time.)
2. 1919 to 1930 (Taisho 8 to Showa 5), when the company expanded into northern
China, Siberia, Korea, and Taiwan.
2
Idemitsu Kosan Co., Ltd. (1964). Idemitsu ryakushi (A brief history of Idemistsu) (p. 5). Tokyo:
Idemitsu Kosan.
Expansion into Manchuria and Delivery of Axle Oil to the South. . . 151
3. 1931 to 1936, when the emphasis was placed on foreign regions. The focus of
overseas operations shifted to Manchuria as well as the rest of China.
4. 1937–1941, when the company focused on overseas operations, increasing its
activities in China outside of Manchuria.
5. 1942 to August 15, 1945, when existing overseas operations faced hardship
during World War II, but expanded into the South.
6. August 15, 1945 to 1947, after losing all overseas operations and assets due to
Japan’s defeat, until the company was integrated into Idemitsu Kosan.
The developments of Idemitsu Shokai and Sazo Idemitsu can be traced through their
words and actions during each of these periods.
Expansion into Manchuria and Delivery of Axle Oil

to the South Manchuria Railway
In Manchuria during the first period, Russian-produced oil’s share shrank after the
Russo-Japanese War, and the market was dominated by three Anglo-American
companies: Standard Oil, Asian Petroleum (a Shell affiliate), and Texas Petroleum.
Standard Oil, in particular, had tremendous power in the Manchurian market.
Japanese oil companies were hesitant to enter the Manchurian market because
Japanese petroleum products faced disadvantageous conditions in transportation
costs, tariffs, and quality standards.
The South Manchuria Railway (Manchuria Railway) imported locomotives,
passenger coaches, and freight cars from the U.S., and all lubricating oil used in
these trains was also made in the U.S. After developing a comparable axle oil using
Japanese petroleum products, Idemitsu approached various contacts associated with
the Manchuria Railway to carry out analytical testing. After two years of analysis
and tests it was found safe to use. At the next round of cost estimates, Idemitsu
offered to deliver at half of Standard Oil’s delivery price.
Idemitsu’s sales efforts left a strong impression on Manchuria Railways, creating
interest within the railway company to actively use Idemitsu’s machine oil. Idemitsu
Shokai thus began delivering axle oil (lubricating oil) to Manchuria Railways in
1914.3 Idemitsu recounts the circumstances that led Manchuria Railways to purchase
his company’s axle oil:
I first asked for an analytical test, and then a field test. Then I asked them to designate a
branch line to carry it out. That was the Fushun Line. As I asked for the field test so eagerly,
3
See The Idemitsu History Compilation Office, Kwantung Leased Territory Manchurian Idemitsu
History Investigation Committee (Eds.) (1958). Kantoshu Manshu Idemitsu-shi oyobi Nichiman
seiji keizai ippan jokyo chosa shiryo shuroku (History of The Kwantung Leased Territory Man-
churian Idemitsu and investigations on the general situation of Japan–Manchuria politics and
economy), pp. 17–23; and Idemitsu Kosan Co., Ltd. (Ed.) (1970). Idemitsu gojunen-shi (The fifty
years’ history of Idemitsu) (pp. 102–104). Tokyo: Idemitsu Kosan.
an engineer from the Manchuria Railway offered me the oil testing factory at the Shahekou
plant of the Manchuria Railway. The factory had all kinds of testing machines, but none of
them were being used and were collecting dust. I was provided with a technician, so I
completed most of the practical tests that required machines. Fortunately, we obtained good
test results, so we then conducted a field test on the Fushun line and it performed as well as
foreign products. Then they decided to give us some business.4
Beginning with the delivery of lubricating oil to the Manchurian Railway, the
company began to handle cement, volcanic ash, machinery and tools, in addition
to petroleum products. In April 1916, Idemitsu Shokai opened its Dalian Branch
Office—its first ever location beyond the head office, inside or outside of Japan.
During the abovementioned second period, Idemitsu Shokai achieved steady
growth. The driving force was active expansion of distribution channels in East
Asian regions.
Looking at the sales of Idemitsu Shokai by branch in 1929, the Dalian
branch (1,074,782 yen) boasted the largest sales, followed by the Shimonoseki
branch (1,073,038 yen). These were followed by Keijo (Kyeongseong/Seoul) branch
(996,968 yen), Moji branch (979,351 yen), Taipei branch (931,050 yen), and Hakata
branch (703,948 yen). Sales at the Wakamatsu branch (16,037 yen) were limited.5
Clearly, the expansion of distribution channels in Manchuria, Korea, and Taiwan
played a major role in the company’s growth in the decade after World War I.
By 1929 the largest sales volume among all branches was found in Manchuria’s
Dalian Branch, established in 1916 as the Dalian Outpost Office. Significant for its
business expansion was the development of “No. 2 winter weather proof axle oil” for
the Manchuria Railway.
In Manchuria’s extremely cold weather, the freezing of lubricating oil caused the
axles of freight cars to overheat, taking a heavy toll on Manchuria Railway’s
operations. Idemitsu Shokai began supplying axle oil to the Manchurian Railway
in 1914, and in 1917 submitted 300 cans of “No. 2 winter weatherproof axle oil” as a
sample batch. A year passed without any response, so the company tried to contact
the railway but found it impossible to make any progress because the section chief in
charge had been replaced. Manchuria Railway had an inventory of axle oil made by
non-Japanese oil companies, which had been prioritized.
However, in early 1918, the axles of several hundred Manchurian Railway freight
cars were damaged by overheating, resulting in a loss of 3-four million yen. Idemitsu
Shokai was then called in by the Manchurian Railway and participated in the field
tests in Changchun in extremely cold weather. Four types of axle oil were for testing:
Vacuum, Standard Oil, Idemitsu’s regular winter weather oil that it had supplied in
the past, and “No. 2 winter weatherproof axle oil” that Idemitsu submitted as a
4
Op. cit., The Idemitsu History Compilation Office, Kwantung Leased Territory Manchurian
Idemitsu History Investigation Committee (Eds.) (1958), pp. 22–23.
5
See The Hakata Idemitsu History Research Committee and the Idemitsu History Compilation
Office, the General Affairs Division (Eds.) (1959). Hakata Idemitsu-shi narabini ichibu honten
jokyo chosa shuroku (History of Hakata Idemitsu and investigation records of the head store),
p. 59. Note that the total amount of the sales by the seven branches was 5,775,174 yen.
Pursuing an “Emphasis on Overseas Territories” 153
sample. In the test, only No. 2 winter weatherproof axle oil performed flawlessly; in
contrast, Vacuum’s product performed the worst.
Sazo Idemitsu recounts the process and results of the field test as follows.
The Manchurian Railway burned most of the freight car axles. Winter was the season for
transporting soybeans, and the transportation of soybeans was halted. At that time, the loss in
freight fare was 3.4 million yen, and the indirect damage was enormous. The Manchurian
Railway was severely criticized.... After conducting various oil tests in Changchun, we
decided to test the [lubricant] oil in an actual train. They took out a locomotive and lubricated
the four axles with different oils. One was Vacuum’s oil, which ended up burning, one was
Standard’s quality oil used in the past, one was Idemitsu’s regular winter oil, and one was the
sample I had brought with me. We loaded the four different types of oil and drove to
Gongzhuling in the middle of the night and returned. The results showed that, with
Vacuum’s oil, the wool had popped out of the axle box [journal box], and wool packing
saturated with oil flew out, so it was only natural that it would burn. Next, [wool packing
saturated with] Standard’s oil was half overhung and half remained inside the box. With
Idemitsu’s normal winter weather oil, about half moved from under the axle into the box
interior and was not yet burned but was going to burn. The sample winter weatherproof oil
[No. 2 winter weatherproof axle oil] was perfectly contained under the axle and had not
moved an inch. It was rare for the results to be so clear, so they decided that this oil was the
one, making the decision based on actual performance.6
The two foreign oil companies had previously suggested to the Manchurian Railway
that the box covers be tightened more securely to prevent freezing of the axle oil, but
they did not refer to the performance of the oil itself.
Based on these test results, it was natural for the railway to fully adopt the “No.
2 winter weatherproof axle oil” supplied by Idemitsu Shokai. This oil eliminated
freight car burnout accidents.
Pursuing an “Emphasis on Overseas Territories”
In the third period, Idemitsu Shokai shifted its emphasis to opening outlets abroad
rather than in Japan. The tightening of petroleum controls by the government
increased restrictions on business activities, leading the company to focus on
overseas locations. However, it was not only on the Japanese mainland that state
control over the oil industry was tightened in the mid-1930s—the same occurred in
Manchukuo established by Japan in 1932, and in the Japanese colony of Korea.
The Mukden Incident (the Manchurian Incident) in September 1931, along with
the banning of gold exports introduced again in December 1931, the establishment
of Manchukuo in March 1932, and the establishment of Manchurian Petroleum in
February 1934, had a significant impact on Idemitsu Shokai’s business activities in
Manchuria, which were centered in its Dalian Branch. The implementation of an oil
6
Op. cit. The Idemitsu History Compilation Office, Kwantung Leased Territory Manchurian
Idemitsu History Investigation Committee (Eds.) (1958), pp. 99–100.
monopoly system in Manchuria through the establishment of Manchurian Petroleum

had a particularly large impact.
The company’s response to the tightening of oil controls in Manchuria and its
response to the oil crisis is described in the 11th edition of “Brief History of
Idemitsu” (2008, Education Section, Human Resources Department, Idemitsu
Kosan Co.):
In Showa 7 (1932), after the establishment of Manchukuo, the government sought to control
key industries in the country under a policy to rein in capitalists, pressing ahead with an oil
monopoly. Idemitsu opposed this erroneous policy and did its utmost to correct it, but the
authorities refused to listen. Finally, in Showa 10 (1935), the petroleum monopoly policy
was implemented in Manchukuo. Not only did the authorities reject Idemitsu’s advice, they
also regarded Idemitsu as a mere capitalist commercial enterprise, and placed the company in
such a difficult situation that at one point the Idemitsu began to prepare for withdrawal from
Manchuria. With the tightening of controls on various commodities, commercial rights that
had been cultivated over the past 20 years were taken away by a single piece of legislation.
Almost all of Idemitsu’s products were subject to state control. The bulk of the company’s
operations came to consist of distribution activities under the government’s rationing
system.
Regarding petroleum products, with the implementation of the monopoly law, Idemitsu
was solely responsible for the sale of machinery oil (a freely marketable product) made by
Manseki (Manchurian Petroleum Company, founded in Showa 9) in Manchuria. However,
Idemitsu helped ration fuel oil (subject to the monopoly policy) as a member of sales control
companies located throughout Manchuria,
But Idemitsu, who had not been cowered by powerful capitalists under the past free
economic environment, was predictably discontented with simply being the watchdog of
laws and institutions under the state-controlled economy. Gradually, Idemitsu’s capabilities,
built from on-the-ground experience, naturally surfaced, and the authorities had little choice
but to rely on Idemitsu’s practical expertise. Much of the work, including the distribution of
fuel oil, a monopoly commodity, and the importation of goods for mobilization (goods
covered under the Materials Mobilization Plan), was entrusted to Idemitsu, who became
busier than before the Mukden Incident (pp. 17–18).
Idemitsu Shokai was adamantly opposed to the oil monopoly system in Manchuria
that denied it freedom of business activity. Despite this opposition, the oil monopoly
system was enforced and dealt a heavy short-term blow to the company’s Manchu-
rian business activities. Over time, however, Idemitsu’s field of activity gradually
expanded and its business in Manchuria even expanded under the oil monopoly
system. Thus a kind of “reverse phenomenon” occurred in Manchuria, in which
Idemitsu Shokai was constrained in the short term under the tightening of oil
controls, but managed to expand the scale of its business over the long run.
As restrictions on Idemitsu Shokai’s business activities in Manchuria and Korea
intensified, the company shifted its business focus outside of Manchuria to China.
The first step was to enter Shanghai, a stronghold of foreign oil companies. Idemitsu
Shokai opened its Shanghai branch in 1935.
The fourth period began with the outbreak of the Japan-China Incident in July
1937. Idemitsu Shokai’s sales in fiscal 1938 (by region and branch) were as follows:
the largest sales volume was in Manchuria (16,842,050 yen in total for the Dalian
branch and Manchuria combined), followed by China outside Manchuria
(13,456,526 yen). Sales in Japan (7,982,595 yen) were higher than those of the
Pursuing an “Emphasis on Overseas Territories” 155
Gyeongseong branch in Korea (4,303,730 yen) and the Taipei branch in Taiwan
(4,180,618 yen), but did not even surpass that of the Dalian branch (9,806,658 yen).7
Hence, as of 1938, Idemitsu Shokai was already focused on overseas operations,
with an emphasis on Manchuria and China. This policy was thoroughly reinforced at
a meeting of company branch managers held at the head office in Moji (in Fukuoka
Prefecture) in December 1938. At the opening of this meeting, the branch owner,
Sazo Idemitsu, made the following statement:
As you are aware from the newspapers, as a result of the national policy to tighten controls
over foreign exchange and industry, the oil industry has decreased production of petroleum
and machine oil, and Idemitsu’s business in Japan has been following an uninteresting path,
but I am very happy to hear that business in Manchuria is growing steadily and that North
China is developing as an extension of Manchuria. . . .
In the continent, we need to consider all angles to work on various tasks. Whether the
achievement of expected results even in these [tough] times is from good fortune or from
past sacrifices, I would like to express my gratitude to all of you for your efforts. I would also
like to ask you how we can continue to make good progress on the continent, and how we
can further develop our business. I wish you all the best in your endeavors.8
Sazo Idemitsu announced clearly that he would increasingly focus on his growing
overseas business. Idemitsu Shokai, which had established a policy of actively
pursuing business overseas while cultivating opportunities in Japan, reorganized
its corporate structure from 1939 to 1940, shifting from a single company system
under Idemitsu Shokai to a four-company structure (Idemitsu Shokai, Idemitsu
Kosan, Manchuria Idemitsu Kosan, and China Idemitsu Kosan).
As of May 1942, the total number of personnel in these four Idemitsu companies
reached 1095. The breakdown by company: Idemitsu Shokai (246 employees),
Idemitsu Kosan (361 employees), Manchuria Idemitsu Kosan (105 employees),
and China Idemitsu Kosan (383 employees). The breakdown by region was as
follows: Japan (319), Korea (85), Taiwan (123), Kwantung Leased Territory and
Manchuria (185), and China other than Manchuria (383).9
In the period after the Second Sino-Japanese War, as the Japanese military
occupied more and more territory, oil controls by the military expanded to cover a
wider area. However, even there, a kind of ‘reverse phenomenon’ occurred, in which
Idemitsu was constrained in the short term under the tightened oil controls but
expanded its business scale in the long term. This reverse phenomenon that first
appeared in Manchuria occurred again in China after the Second Sino-Japanese War
7
See Korean Idemitsu History Research Committee and History Compilation Office, the General
Affairs Division (Eds.) (1959). Chosen Idemitsu-shi oyobi Chosen seiji keizai ippan jokyo chosa
shiryo shuroku (Records on Korean Idemitsu history and investigations on the general situation of
Korean politics and economy), p. 208.
8
Op. cit., The Hakata Idemitsu History Research Committee and the Idemitsu History Compilation
Office, the General Affairs Division (Eds.) (1959), pp. 97–98.
9
Idemitsu Kosan Co., Ltd., Personnel Affairs Division, Education Section (Ed.) (2008). Idemitsu
ryakushi daijuichihan (Brief history of Idemistsu), Vol. 11, Appendix Table. Tokyo: Idemitsu
Kosan.
as the company expanded its storage network throughout China and opened a large-
scale oil depot in Shanghai.
Construction of Idemitsu’s Shanghai oil depot, with a storage capacity of 50,000
tons, began in August 1939 and was completed in April 1940. The local Japanese
military authorities provided the land and encouraged the construction of the oil
depot. Idemitsu purchased the materials needed for construction from the U.S. using
the foreign currency it had on hand. Of the oil imported from the U.S. and stored at
Idemitsu’s Shanghai depot, kerosene was used for civilian purposes throughout
China and Manchuria, while gasoline was supplied to the military.10
Deployment to the South and Japan’s Defeat in World War II
The fifth period corresponds to Japan’s engagement in World War II. The 11th
edition of “Brief History of Idemitsu” cited earlier describes the company’s opera-
tions in China during World War II as follows:
As relations with Britain and the U.S. became increasingly tense on the Chinese mainland,
Idemitsu scrambled to arrange emergency imports of petroleum products in case foreign
imports were halted. Idemitsu also scoured products available on the market, striving to
secure them. When the Pacific War broke out, Japan had no choice but to replace U.S. and
British oil supplies in China. However, other than Idemitsu’s oil reserves, there were almost
no other stocks of civilian oil. As the oil on hand was also under government control,
Idemitsu devoted itself to the distribution of civilian oil under the rationing system. As
supplies became increasingly tight, Idemitsu focused its efforts on purchasing and producing
substitute fuel oil and lubricating oil in accordance with the government’s policy of local
self-sufficiency. It also tried to tow oil from the south by private vessels. During the war, the
company played an important role in the national oil policy in mainland China, constantly
attempting to guide the authorities’ oil policy in the right direction (pp. 26–27).
In the six months following the outbreak of war between Japan and the United States
in December 1941, large areas of Southeast Asia and the Southwest Pacific were
occupied by the Japan’s Imperial Army and Navy. Military rule was imposed in
these areas, and the oil resources in the region were to be used for military purposes
as well as to supply local civilian needs.
At first, the local Japanese forces planned to establish an enormous oil distribu-
tion organization that would require approximately 2000 employees, and sought
approval from the Defense Ministry. However, the Ministry rejected the plan based
on its experience with the dysfunctional distribution system in China, and appointed
Idemitsu to handle the task. In 1942, Idemitsu, entrusted with the task of rationing
10
See: The Research Committee for the History of Oil Depots in Shanghai and the Compilation
Office of the History of Idemitsu, the General Affairs Division (Eds.) (1959). Idemitsu Shanghai
yusojo-shi narabini Chuka Idemitsukosan jokyo chosa shuroku (genko) (Records of the history of
Idemitsu Shanghai oil depots and investigations on the situation of China Idemitsu Kosan (draft)),
pp. 27–36.
Deployment to the South and Japan’s Defeat in World War II 157
civilian oil supplies in the territories occupied by the Japanese army, dispatched
more than a hundred personnel to the south as military attachés.
Immediately after their deployment, very serious “anti-Idemitsu sentiment” arose
among Japan’s Southern Expeditionary Army. Although the deployed Idemitsu
personnel faced challenges, they were efficient in their work in various locations
and were able to get difficult tasks on track in a short period of time. As a result, the
hostility toward Idemitsu that had been simmering within the local military gradually
dissipated, and they even began to provide active support. In 1943, Idemitsu was
also entrusted with oil rationing operations in areas in the south occupied by the
Japanese navy.11
In July 1942, Sazo Idemitsu offered the following encouragement to his
employees heading south:
The new territory in the south is a blank sheet of paper. There are no customs or prejudices.
In this new land of our own, we are trying to make a vast and complicated project simple and
easy, and thereby manifest our true strength. This should not be considered merely a trivial
matter in oil rationing. It should be a major mission for the nation. Moreover, we should be
aware that this is a mission that only we can accomplish.12
With defeat on August 15, 1945, Japan lost its colonies in Korea, Taiwan, and South
Sakhalin, and became an occupied country of the Allied Powers led by the United
States. This is the sixth period.
During the war, most of Idemitsu’s domestic business was absorbed by a state-
controlled company, and after defeat the overseas business that had been its focus
was totally lost. The company was in a serious predicament – all that remained were
approximately 1000 employees and debts of approximately 2.5 million yen.13
Amidst growing unease over such a “fresh start from negative territory,” Sazo
Idemitsu said in September 1945:
Looking back on Idemitsu’s operations in Japan, only a small fraction of the company’s
business remained after it was taken over by a state-controlled company during the war. Our
operations in Taiwan, Korea, Manchuria, China, and the entire southern region were
[figuratively] destroyed by the atomic bomb. Although Idemitsu had invested a considerable
amount of its domestic funds overseas, neither the principal nor the profits were repatriated
from abroad. Thus, Idemitsu was left with debts in Japan. Although the business disappeared
and the debt remained, Idemitsu had 800 human personnel overseas. This is the only capital
we have, and this is what will make our future business. Idemitsu, with its respect for
individual human beings, should not be so rash as to lay off its personnel just because the
war ended [in defeat].14
11
Idemitsu Kosan Co., Ltd., Store Manager Office (Eds.) (1994). Tsumikasane no nanajunen
(Seventy years of experience) (pp. 306–315). Tokyo: Op cit., Idemitsu Kosan; Idemitsu Kosan
Co., Ltd., Personnel Affairs Division, Education Section (Ed.) (2008). (pp. 27–29).
12
Idemitsu, S. (1962). Ningen soncho gojunen (Fifty years of respect for people) (p. 143). Tokyo:
Idemitsu Kosan.
13
Op. cit., Idemitsu Kosan Co., Ltd., Store Manager Office (Eds.) (1994). (Seventy years of
experience) (p. 543).
14
Idemitsu, S. (1972). Waga rokujunenkan daiikkan: Sogyo yori showa sanjuyonen (My sixty years,
Vol. 1: From the company’s foundation to Showa 34) (p. 156). Tokyo: Idemitsu Kosan.
President Sazo Idemitsu at a press conference at Idemitsu Kosan’s Kawasaki Oil Terminal in 1962
(Courtesy of The Asahi Shimbun/Jiji Press Photo)
To have expressed such a quick and clear “no layoffs” policy in an extremely
difficult business environment was an exceptional act in the social climate of
the time.
Transformation into “Hero of Native Oil Companies”
Despite suffering a major blow with the loss of its overseas branches in 1945,
Idemitsu Shokai made a fresh start in 1947 by transferring its business to its
subsidiary Idemitsu Kosan (at that point, Sazo Idemitsu was also president of
Idemitsu Kosan as an owner-manager). Idemitsu was designated by the Japan Oil
Distribution Public Corporation as a distributor in 1947, followed by its designation
as a wholesaler in 1949.
Sazo Idemitsu became the “Hero of native oil companies.” It did not team up with
foreign companies and it implemented daring strategies as seen in the Nissho-Maru
Incident in 1953. Idemitsu Kosan developed its business with financial support from
the Bank of Tokyo and Tokai Bank, constructing the Tokuyama Refinery in 1957,
building the [tanker] Nissho-Maru III in 1962, and constructing the Chiba Refinery
in 1963. During this period, Idemitsu Kosan’s share of the Japanese oil market rose
rapidly, from 8.6% in 1950 to 14.3% in 1960, and its share of refining capacity rose
from 0% in 1955 to 13.7% in 1960. Sazo became chairman of Idemitsu Kosan in
1966; he retired from that position in 1972, and died in 1981.
Transformation into “Hero of Native Oil Companies” 159
In this case study we looked at the entrepreneurial activities of Sazo Idemitsu,

focusing on the “oil merchant of the continent” aspect of his prewar years. The long
period of strong growth in the Japanese economy from around the start of World War
I through the 1980s was driven by a series of innovative entrepreneurial activities
that primarily focused on the domestic market, but through this case, I wanted to
show that there were some examples, although few, geared toward foreign markets.
Like Shitagau Noguchi and Yoshisuke Aikawa, Sazo could not escape the loss of
his overseas assets and operations due to Japan’s defeat. Unlike Noguchi and
Aikawa, however, Sazo revived himself phoenix-like as an innovative entrepreneur
after the war, transforming from “oil merchant of the continent” with sights set on
overseas expansion to “hero of native oil companies” focused on the domestic
market.
parts of it.
Case 14 Yataro Nishiyama: Leader
of Capital Investment Drives High
Economic Growth
Abstract This chapter introduces Yataro Nishiyama, president of Kawasaki Steel

(the predecessor of today’s JFE Group), that drove high economic growth in the
Showa period.
A Decade of Revitalization
The “Lost Decade” denotes the 1990s when the Japanese economy was mired in
uncertainty after the bursting of the economic bubble. The term “second defeat” has
also been often used, comparing the 1990s to Japan’s defeat in World War II, after
events such as the acquisition by a U.S firm of bankrupt Long-Term Credit Bank of
Japan (becoming Shinsei Bank), and the arrival of a top French executive at Nissan.
How did the Japanese live amidst their “first defeat”—the decade following
August 15, 1945 (Showa 20)? U.S. air raids had reduced many of Japan’s major
cities to ash. Inflation was rising rapidly and the streets were filled with the
unemployed. Simply put, the Showa 20 s should have been the “Lost Decade” for
Japan. The reality, however, was not so simple. For the country’s economy, that
decade never turned into a “Lost Decade.” Rather, the Showa 20 s became the
“decade of revival,” with the Japanese economy accelerating quickly, leading to the
high growth of the following years.
During the period of rapid economic growth beginning in the Showa 30 s
(1955–1964), Japan witnessed the emergence of a series of entrepreneur heroes.
However, it is important to remember that even in the Showa 20 s when the Japanese
economy was still in the preparatory stage for takeoff, the nation already had several
heroes who played a pioneering role: Sazo Idemitsu of Idemitsu Kosan and Yataro
Nishiyama of Kawasaki Steel (the predecessor of today’s JFE Group), both accom-
plished feats referred to as “miracles” in the early summer of 1953.1
1
For details about Yataro Nishiyama, see Itami, H. (2015). Kodoseicho wo hikizuridashita otoko:
Sarariiman shacho Nishiyama Yataro no yume to ketsudan (The dream and decision of Yataro
Nishiyama, a salaryman company president who pulled out high-speed economic growth). Kyoto:
PHP Institute, Inc.
© Kreab K.K. 2023 161

162 Case 14 Yataro Nishiyama: Leader of Capital Investment Drives. . .
Yet Another Miracle
In June 1953, one month after Idemitsu Kosan’s Nissho-Maru II returned to Kawa-
saki Port from Iran with a full load of gasoline and diesel fuel, a blast furnace was
fired up in Chiba on the opposite shore of Tokyo Bay, drawing nationwide
attention—Kawasaki Steel’s No. 1 blast furnace at its Chiba Works.
Kawasaki Steel (Kawatetsu) was a young company led by the inaugural presi-
dent, Yataro Nishiyama, that had been spun off from Kawasaki Heavy Industries just
a few years before, in 1950. With a capital of 500 million yen at the time, Kawasaki
Steel would invest an astounding 16.3 billion yen to build the new Chiba Works, an
integrated pig-iron-to-steel production facility equipped with a blast furnace. This
plan was not only unprecedented in scale, but also daring in the sense that it would
break the status quo in an industry then comprised of three ironworks (Yawata Iron
& Steel, Fuji Iron & Steel, and Nippon Kokan Kaisha/NKK), plus three dedicated
steelmakers (Kawasaki Steel, Sumitomo Metals, and Kobe Steel).
The media reported amusingly that Bank of Japan Governor Hisato Ichimada had
ridiculed Kawasaki Steel’s plan for Chiba Works, saying that if such a plan was
implemented Kawatetsu would come to a standstill and the Chiba Works would
grow weeds on its roof. The Ministry of International Trade and Industry (MITI), the
supervising authority over the steel industry in favor of maintaining the status quo,
also strongly objected to the construction of the Chiba Works, which involved the
installation of a blast furnace. Yataro Nishiyama resisted these “government pres-
sures” and brought the No 1 Blast Furnace Kawatetsu Chiba Works into operation.
Nishiyama’s achievement drew nationwide attention. It was perceived as “another
miracle” puncturing the government-led control over the economy that had remained
in place long after Japan’s defeat.
Sazo Idemitsu and Yataro Nishiyama, who pulled off back-to-back “miracles” in
the early summer of 1953, possessed rebellious spirits, refusing to pander to the
establishment. Complacency cannot produce a pioneer who ushers in a new era. As
is often the case with pioneers, they did not adhere to the proverb that “the nail that
sticks out gets hammered;” instead they opted to stand tall even if hammered.
Key Points of Nishiyama’s Innovativeness
Yataro Nishiyama was born in 1893 (Meiji 26) in Azuma Village (present-day
Ninomiya-machi, Naka County, Kanagawa Prefecture). After graduating from the
First High School (Ichiko), Nishiyama studied at the Department of Metallurgy,
Faculty of Engineering, Tokyo Imperial University. In 1919 (Taisho 8), he joined
Kawasaki Dockyard and built his career in the steelmaking field. Nishiyama became
the first president of Kawasaki Steel, which was spun off from Kawasaki Dockyard
(later, Kawasaki Heavy Industries) in 1950 (Showa 25). It was three years before the
company’s first blast furnace at Chiba Works came online.
Key Points of Nishiyama’s Innovativeness 163
Historian Seiichiro Yonekura highlights the following three points regarding

Yataro Nishiyama’s innovativeness, demonstrated in the construction of the
Kawatetsu Chiba Works.2
1. By entering the integrated pig-iron-to-steel production, the company broke the
status quo in the steel industry, creating vigorous oligopolistic competition
among the six major manufacturers (Sumitomo Metals and Kobe Steel were
also prompted by the success of Kawatetsu Chiba Works to launch integrated
pig-iron-to-steel production).
2. Kawatetsu Chiba Works itself “was beyond the league of any existing plants,”
due to its sheer size, streamlined layout, coastal location suitable for importing
raw materials and exporting finished products, and its proximity to the large
consumer area in Tokyo.
3. Nishiyama promoted capital investment through the active use of external capital.
The breakdown of the 16.3-billion-yen financing plan drafted by Nishiyama
consisted of 8 billion yen from a counterpart fund, 3.1 billion yen in corporate
bonds, 1 billion yen in bank loans, 2.5 billion yen in capital increase through
share issuance, and 1.7 billion yen in cash on hand. Counterpart funding is a
system whereby the government of the recipient country (in this case, the
Japanese government) sells goods donated by the donor country (in this case,
the United States) and uses the profits for social development projects.
Of these, (1) was representative of the development pattern commonly observed in
Japan’s major industries from wartime to high-growth periods: aggressive entry of
second-tier firms into the market, intensification of oligopolistic competition, and
strengthening of the industry’s international competitiveness as a whole.3 The
pattern of “construction of new coastal factories through major bank loans”
described in (2) and (3) was not confined to the steel industry but was also adopted
by other major industries, becoming a typical pattern of capital investment during the
high-growth period. Points (1), (2), and (3) embodied Yataro Nishiyama’s rebellious
spirit of breaking the status quo, and were important precursors to Japan’s high
economic growth.
2
Yonekura, S. (1998). Nihon seitetsugyo no kakushinsha Nishiyama Yataro (Kawasaki seitetsu)
(Innovator of Japan’s steel industry: Yataro Nishiyama (Kawasaki Steel)). In H. Itami, T. Kagono,
M. Miyamoto, & S. Yonekura (Eds.), Kesubukku Nihon kigyo no keiei kodo 4: kigyoka no gunzo
to jidai no ibuki (Case book management behavior of Japanese companies 4: Images of entrepre-
neurs and the spirit of the times). Tokyo: Yuhikaku Publishing Co., Ltd., pp. 189–193.
3
Kikkawa, T. (1995). Chukansoshiki no henyo to kyosoteki kasen kozo no keisei (The transfor-
mation of intermediary organizations and the formation of competitive oligopoly structures). In
H. Yamazaki, & T. Kikkiawa (Eds.), Nihon keieishi 4: Nihonteki-keiei no renzoku to danzetsu
(Japanese business history 4: The continuity and discontinuity of Japanese-style management,
Vol.4) (pp. 233–274). Tokyo: Iwanami Shoten Publishers.
The Man who Changed the History of Japan’s Steel Industry
Yataro Nishiyama’s construction of the No. 1 blast furnace at Kawatetsu Chiba

Works changed the history of Japan’s steel industry. To understand this point, we
must return to the eve of World War II.
As already noted, the steel industry, similar to the coal and other industries,
became one of the main targets of government wartime economic controls. The Iron
and Steel Industry Law was enacted in 1937 and the rationing of steel and scrap iron
began in 1938. The Steel Control Board was established in 1941. Furthermore, in
1943 major steel mills came under the direct control of the Ministry of Commerce
and Industry, although this was short-lived because of the defeat in 1945.
At the outbreak of the Second Sino-Japanese War in July 1937, the Japanese
government favored Nihon Seitetsu (Japan Iron & Steel), the leading company at the
time, and severely restricted others’ entry into pig iron production. However, as pig
iron imports from India and scrap iron imports from the U.S. were increasingly likely
to be disrupted,4 the Iron Manufacturing Industry Law promulgated one month after
the outbreak of the Sino-Japanese War reflected a reversal of position, allowing
steelmakers to enter pig iron production.
Having met certain efficiency standards set by law, other steelmakers in addition
to Nihon Seitetsu began producing pig iron. As a result, the ratio of production by the
top three companies with respect to pig iron fell from 97.8% in 1937 to 88.5% in
1944. On the other hand, the concentration ratio of top companies in the steelmaking
industry grew in the early 1940s as “scarce resources were invested in a limited
number of firms” (the concentration of the top three firms regarding steel products
rose from 56.2% in 1937 to 64.9% in 1944).5 Still, the oligopolistic trend in the pig
iron manufacturing industry was much stronger than in the steel manufacturing
industry.
After World War II, the concentration of the top three companies in steel
manufacturing declined significantly, falling from 64.9% in 1944 to 49.6% in
1950. Osamu Ito categorized market structure into eight types: Type A (monopoly),
Type B (top 1 firm and multiple lower tier firms), Type C (2 tiers, upper and middle),
Type D (3-tier, upper, middle, and low), Type E (middle-tier oligopoly), Type F
(middle-tier oligopoly and lower tier), Type G (one monopoly firm in the middle tier,
plus lower tier firms), and Type H (atomized type). He noted that competition would
gradually increase from the least competitive Type A to the most competitive Type
H.6 The market structure of standard steel products changed from Type B in 1937 to
4
In fact, the US banned the export of scrap iron to Japan in September 1940 as one of countermea-
sures for ending the Japan-German-Italy Tripartite Military Pact and Japan’s intrusion into the
northern part of French Indochina.
5
Op. cit., Kikkawa, T. (1995), pp. 255–258.
6
Ito, O. (1988). Nihon no sangyo soshiki to kigyo: Senzen sengo no hikakubunseki (Japanese
industrial organizations and companies: Comparative analysis of the prewar and postwar era). In
Kanagawa University, Shokei ronso (The review of economics and commerce), 24(1).
The Man who Changed the History of Japan’s Steel Industry 165
Type D in 1949, and then to Type F in 1955. Similarly, the structure of the pig iron
market transitioned from Type C in 1937 through Type D in 1949 to Type F in
1955.7
In the postwar period, two factors contributed to intensification of competition
among companies in the Japanese steel industry. One was the division of Nihon
Seitetsu into Yawata Iron & Steel and Fuji Iron & Steel under the Law for the
Elimination of Excessive Concentration of Economic Power. The other was the
innovative entrepreneurial efforts by corporate managers in the second and lower tier
firms, such as Yataro Nishiyama of Kawasaki Steel.
In June 1953, Nishiyama commissioned the blast furnace at Kawatetsu Chiba
Works, the most advanced of its kind in Japan at the time. The construction of the
Chiba Works, financed by a long-term loan provided by the Japan Development
Bank and by a loan from Kawatetsu’s main bank, Dai-Ichi Bank, was the highlight
of the “First Rationalization Plan” implemented in Japan’s steel industry in the early
1950s.
As the plan progressed, the Japanese government adopted the principle of
providing equal assistance to all companies that met certain criteria for efficiency.
For example, from 1952 onward, the Japan Development Bank provided long-term
loans to six companies: Fuji Iron & Steel, Yawata Iron & Steel, NKK, Kawasaki
Steel, Sumitomo Metals, and Kobe Steel.8
The mechanism at work here, whereby the Japanese government in principle
provided equal assistance to all companies meeting certain efficiency criteria, was
what Japanese economist Juro Hashimoto dubbed the “equal opportunity principle
for honor students9”—observed also in the implementation of the Iron Manufactur-
ing Industry Law of 1937. However, not until the implementation of the “First
Rationalization Plan” did this principle fully take root in the steel industry. Yataro
Nishiyama was clearly the person behind the “equal opportunity” principle, as he
developed the Kawasaki Steel Chiba Works, the main highlight of the “First
Rationalization Plan.”
Following the completion of the “First Rationalization Plan,” the second ratio-
nalization plan was launched in 1956, mainly involving competition among the three
existing blast furnace steelmakers (Yawata Iron & Steel, Fuji Iron & Steel, and
NKK) and the three others that formerly used open hearth furnaces (Kawasaki Steel,
Sumitomo Metals, and Kobe Steel). These companies all rushed to construct blast
furnaces, a reflection of the “Kawatetsu shock” triggered by the construction of
Kawasaki Steel’s Chiba Works. Their action, however, was also inspired by the
government’s 1957 New Long-Term Economic Plan to make the country
7
Op. cit. Kikkawa, T. (1995), pp. 256; 258–259.
8
Yamagiwa, K. (1979). Sengo Nihon keizai no gorika katei to kaigin no yakuwari (The rational-
ization process of the postwar Japanese economy and the role of Japan Development Bank). In
Chuo daigaku daigakuin nenpo daihachigo (Bulletin of Graduate Studies, Chuo University, No.8),
pp. 204–205.
9
Hashimoto, J. (1991). Nihon keizairon: Nijusseiki sisutemu to Nihon keizai (On the Japanese
economy: twentieth century system and the Japanese economy) (p. 284). Kyoto: Minervashobo.
self-sufficient in pig iron, with a specific goal of constructing ten blast furnaces by
FY1962.
Upon entering the 1960s, the competition among the six blast furnace steel mills
to build integrated steelworks accelerated, driven by the remarkable growth of steel
demand and the “Income Doubling Plan” announced by the government in 1960.
During this period, a series of large-scale integrated iron works were established in
coastal locations: Sumitomo Metals (Wakayama) and NKK (Keihin) in 1961, Fuji
Iron & Steel (Nagoya) in 1964, Yawata Iron & Steel (Sakai) in 1965, NKK
(Fukuyama) in 1966, Kawasaki Steel (Mizushima) in 1967, Yawata Iron & Steel
(Kimitsu) in 1968, Kobe Steel (Kakogawa) in 1970, and Sumitomo Metals
(Kashima) in 1971.10
In the competition for capital investment among steel companies during the
period of high economic growth, the “equal opportunity principle for honor stu-
dents” was evident throughout. This overarching long-term trend shows that Yataro
Nishiyama had changed the rules of the game. Just as Yasuzaemon Matsunaga
transformed the electric power industry, Nishiyama changed the history of the
Japanese steel industry.
Decision-Making with a Rational Thinking
It is important to note that Yataro Nishiyama’s actions in breaking the status quo
were not the product of passion but were backed by sound calculation and experi-
ence. His greatness came not only from audacity, but also from the meticulousness of
decisions based on a clear rationale.
According to Hidemasa Morikawa, Yataro Nishiyama envisioned meeting three
challenges when he decided to build the Chiba Works of Kawatetsu: (1) the prospect
of steel market expansion, (2) financial planning, and (3) securing technical capa-
bilities. Nishiyama took measures to meet these challenges that included: (1) market
research as of 1949, before the Korean War; (2) lobbying MITI (the Ministry of
International Trade and Industry), which was in charge of overseeing the counterpart
fund, and inviting Shosoku Omori, the managing director of Dai-Ichi Bank, to
become chairman of Kawatetsu; and (3) recruiting highly skilled blast furnace
engineers (including Saburo Asawa) from Showa Steel, formerly a group company
under the wartime Manchuria Railway (South Manchuria Railway). Morikawa
concludes that Nishiyama was not so much a “passionate person” as a “passionate
organizer” with the ability to think critically and rationally.11
10
It is said that fourteen of the top twenty furnaces in the world with high-productivity performance
were already in Japan as of 1965. See Nikkei (Eds.). (1988). Showa no ayumi 2: Nihon no sangyo
(Showa history 2: Japanese industries) (p. 134). Tokyo: Nikkei Publishing Inc.
11
Morikawa, H. (2001). Nishiyama Yataro (Kawasaki seitetsu): Kan heno hangyakusha niyoru
goriteki kosoryoku (Yataro Nishiyama (Kawasaki Steel): Rational conceptual capacities by a rebel
against the government). In S. Sasaki (Eds.), Nihon no sengo kigyokashi: Hankotsu no keifu (The
Into the Era of High Economic Growth 167
Into the Era of High Economic Growth
Hiroyuki Itami, who wrote a critical biography of Yataro Nishiyama entitled “The
Dream and Decision of Yataro Nishiyama, A Salaryman Company President Who
Pulled out High-Speed Economic Growth” (Itami 2015), shares Nishiyama’s recol-
lections about the construction of the Chiba Works. It was published in the
November 8,1958 edition of the Kawasaki Steel Newspaper, an in-house
publication:
It was quite a commitment. But it was also based on a meticulous and careful plan, and I
think what made me so determined was my awareness of the trends of the times. In other
words, the postwar industrial revolution and advances in science and technology changed
the old iron manufacturing methods, and everything became mass-produced, precise, and
automated, making it impossible to compete using the old methods in terms of quality and
price. Kawatetsu also gave up on the old method and decided to start the continuous
production from pig-iron-to-steel rolling.
In addition, the international situation of the time had left postwar Europe exhausted. The
European countries prioritized reform of their steel industry, and as a result Japan’s steel
industry came under pressure. The situation became so serious that the Japanese industry
would have been destroyed if it continued the status quo.
The same would have been true on the domestic front. The population was growing and
domestic resources were scarce. Therefore, the entire country had to seriously consider how
to feed itself. Before the war, the cotton industry was a major exporter, but after the war the
cotton consuming regions [of the world] were already entering the self-sufficiency phase.
Under these circumstances, Japan would be forced to become self-sufficient through heavy
industry in the coming years. To do so, it was first necessary to improve the steel industry,
the foundation of all heavy industry. We began construction of Chiba Works, agreeing that
we would first build a blast furnace and establish integrated steel making operations, then
work on modernization, starting with the manufacturing of sheet metal.12
As this recollection shows, Yataro decided to build the Chiba Works based on his
accurate “perception of the trends of the times;” his standpoint was rooted in the big
picture. It was also driven by his strong sense of mission, taking into full account the
domestic and international situations.
The “equal opportunity for honor students” principle normalized by Nishiyama
went beyond steelmaking, and was adopted by other major industries. Competition
for capital investment intensified among companies that met certain efficiency
standards, and this opened the door to the era of high economic growth. From
1951 to 1953 the Japanese economy returned to pre-World War II levels in terms
of both production and consumption. From the mid-1950s to the early 1970s, the
Japanese economy enjoyed a period of high growth remarkable in global history. In
1968, Japan overtook other developed countries in GNP (Gross National Product),
becoming the second largest economy among capitalist countries, after the United
States.
history of postwar Japanese entrepreneurs: A timeline of anti-establishment minds) (pp. 261–270;

274–275). Tokyo: Yuhikaku Publishing Co., Ltd.
12
Requoted from op. cit., Itami, H. (2015), pp. 161–166.
During this period of high economic growth, Japanese living standards improved
dramatically. Engel’s coefficient (the ratio of food costs to personal consumption)
shrank, while expenditures on durable consumer goods such as the “three sacred
treasures” (black-and-white TVs, electric refrigerators, and electric washing
machines), and the “3Cs” (color TVs, air conditioners, and passenger cars),
increased significantly.
Urbanization and the increase in the number of single-generation households also
helped spending on factory manufactured products, mainly consumer durables. For
Japan’s postwar heavy and chemical industries that had lost their military clients,
this expansion of personal consumption was an important market factor supporting
their growth.
Meanwhile, the average annual growth of private-sector capital investment,
described as “investment spurring investment,” was more than twice that of personal
consumption during this period.13 Along with expansion of personal consumption,
capital investment served as the engine propelling the Japanese economy’s high
growth rate. Japan’s strong economic growth was driven by “domestic demand” in
the form of consumer spending and private-sector capital investment. This charac-
teristic distinguishes Japan from the other later-emerging Asian economies.
Following the construction of the Chiba Works, Yataro Nishiyama devoted
himself to the construction of the Mizushima Iron Works, a driving force of the
private-sector capital investment era. As Hiroyuki Itami noted: Nishiyama “pulled
out a period of high economic growth.” In July 1966, the year before the Mizushima
Iron Works’ blast furnace became operational, Nishiyama stepped down as president
of Kawasaki Steel. He passed away in August of that year.
parts of it.
13
Op. cit., Kikkawa, T. (2007). (Economic growth and Japanese-style corporate management:
Corporate management from rapid growth to the early twenty-first century) (pp.299–300).
Case 15 Konosuke Matsushita: Initiator
of the “Consumer Revolution” Drives High
Economic Growth
Abstract This chapter introduces Konosuke Matsushita, president of Matsushita

Electric (officially, Matsushita Electric Industrial Company, now Panasonic) and
Initiator of the “Consumer Revolution” during the High Economic Growth period in
the Showa era.
The Progression of the “Consumer Revolution”
As discussed in Overview 3, the trend that began in the 1920s—Japan’s economic

growth rate exceeding that of the United States, the United Kingdom, and
Germany—continued over a long period even with interruptions before, during,
and after World War II. Not until the 1990s did the trend come to an end. The most
important factor behind this prolonged period of relatively high growth was the
development of a mass consumer society and increase in personal consumption.
The phenomenon of greater personal consumption driving economic growth was
most widely observed from the mid-1950s to the early 1970s. During this high-
growth period, Japan established a mass consumer society, linking mass production,
mass distribution, and mass consumption.
The term “technological innovation” first appeared in the White Paper on Econ-
omy for FY1956 (Showa 31) along with the famous phrase “The postwar period is
now over,” announcing the advent of the era of high economic growth.1 Three years
later, the White Paper on the National Lifestyle for FY1959 used the expression
1
The Economic Planning Agency (Eds.) (1956). Showa sanjuichinendo keizai hakusho (White
paper on the economy for fiscal 1956) (pp. 33–35; 38). The Printing Bureau, the Ministry of
Finance.
© Kreab K.K. 2023 169

170 Case 15 Konosuke Matsushita: Initiator of the “Consumer Revolution”. . .
“consumer revolution” for the first time.2 Three years after that, the book, “The
Distribution Revolution,” by Japanese author Shuji Hayashi3 became a bestseller.
The White Paper on the National Lifestyle for FY1963, subtitled “Improvement
in Consumer Life and its Levelling Trend,” summed up the changes that occurred in
Japan from the mid-1950s to the early 1960s in terms of consumption, production,
and distribution. It noted “increased consumption, levelling of consumer lifestyles =
arrival of mass consumer society (qualitative change in food consumption, popular-
ization of durable consumer goods etc.);” “technological innovation (emergence of
new products, establishment of mass production systems);” and “changes in sales
mechanisms (development of mass retailers, producers’ entry into the sales sys-
tem).” The report concluded that these were all closely linked.4
The White Paper on the National Lifestyle for FY1959, in which the expression
“consumer revolution” was first used, states:
While the level of consumption exceeded the prewar level by 25%, this does not mean that
consumption of food, clothing, housing, and cultural consumption increased at the same rate.
Not only was there a change in the composition of consumer expenditure owing to the
increased income compared with the prewar period, but there was also a structural change
that has been referred to as a consumer revolution, deriving from changes in people’s
lifestyles and attitudes in the postwar period.5
Thus, “consumer revolution” meant structural changes in consumption, or qualita-

tive enrichment, as distinguished from quantitative increase in consumption. What
specific structural changes in consumption occurred in Japan after the mid-1950s?
The White Paper on the National Lifestyle for FY1963 highlighted the following
four points.6
1. Qualitative change in food consumption
2. Popularization of durable consumer goods
3. Changes in energy sources for utility consumption
4. Increase in active leisure consumption
2
The Civilian Employment Division, the Coordination Bureau, the Economic Planning Agency
(1959). Sengo kokumin seikatsu no kozoteki henka (kokumin seikatsu hakusho Showa
sanjuyonenban) (The structural transformation of postwar national lifestyle (White paper on the
national lifestyle for 1959)) (p. 1). The Printing Bureau, the Ministry of Finance.
3
Hayashi, S. (1962). Ryutsukakumei: Seihin keiro oyobi shohisha (Distribution revolution: Prod-
uct channel and consumer). Tokyo: Chuokoron-shinsha. Inc.
4
The Economic Planning Agency (Eds.) (1964). Showa sanjuhachinendo kokumin seikatsu
hakusho (White paper on the national lifestyle for fiscal 1963) (pp. 8–27). The Printing Bureau,
the Ministry of Finance.
5
Op. cit., The Civilian Employment Division, the Coordination Bureau, the Economic Planning
Agency (1959). (The structural transformation of postwar national lifestyle (White paper on the
national lifestyle for 1959)) (p. 1).
6
Op. cit., The Economic Planning Agency (Eds.) (1964). (White paper on the national lifestyle for
fiscal 1963) (pp. 10–20).
The Progression of the “Consumer Revolution” 171
The changes in energy sources meant rapid growth in consumption of electricity,

gas, and oil. Increased fuel consumption was the result of popularization of durable
goods -various home devices, gas appliances, oil heaters, motorcycles, and automo-
biles. Leisure consumption meant the growing popularity of travel and sports, made
possible by “the spread of convenient consumer durables, the increase in liquid fuel
consumption, the increase in instant foods, and the increased availability of factory-
finished clothing such as sweaters that reduced the amount of housework.7” Thus
point (4) is the outcome of points (1), (2) and (3). The structural changes in
consumption that occurred in Japan after the mid-1950, called the “consumer
revolution,” consisted of a qualitative change in food consumption (1), and the
availability of durable consumer goods (2).
Home appliances were representative of durable consumer goods. From the
mid-1950s, with the start of Japan’s rapid economic growth, home appliances
proliferated in Japanese households. The White Paper on the National Lifestyle for
FY1963 noted that the period from 1956 to 1960 saw the arrival of “the first phase of
a durable consumer goods boom,” and that “furniture and fixtures outlays doubled
during this four-year period, but about 70% of this increase was attributed to the
growth of electrical appliances. The growth of television sales was especially
rapid.8”
“Television” here refers to black-and-white television, widely available as its
price declined. Kiyoshi Nakamura, who discussed the formation of the mass pro-
duction and mass sales system of home appliances, explains this point:
The biggest obstacle to the expansion of the market for [black-and-white] television was,
above all, its price. The path to cost reduction was paved by the domestic production of
cathode-ray tubes in 1954 and was accelerated by the development of various key technol-
ogies associated with production costs and the rapid expansion of mass production. The
14-inch TV became mainstream after the revision of the excise tax in April 1954, rendering it
advantageous in terms of the tax rate. The price dropped to 120,000 yen at the end of the
same year, and after falling below 100,000 yen in 1955, models priced below 70,000 yen
appeared by the end of 1957. By dropping to the level equivalent to two months’ pay of a
middle-class salaried worker, the rate of ownership finally reached 10% in the following
year, to be followed by the era of full popularization.9”
The rapid penetration of home appliances into ordinary households triggered by

price cuts was also observed for other appliances. Popularization of home appliances
began in earnest in the 1960s, with a “home appliance boom.” Black-and-white
televisions, electric washing machines, electric refrigerators, electric kotatsu [table-
7
Ibid., p. 17.
8
Ibid., p. 13.
9
Nakamura, K. (1992). Kaden ryosan ryohan taisei no keisei (The formation of mass production
and mass sale systems of home electric appliances) in H. Morikawa (Ed.), Bijinesuman no tameno
sengo keieishi nyumon: Zaibatsu-kaitai kara kokusaika made (An introduction to postwar business
history for businessmen: From the dissolution of zaibatsu to internationalization) (p. 122). Tokyo:
Nikkei Publishing Inc.
style heaters], electric rice cookers, and electric vacuum cleaners led the way in the
1960s. Of these, the first three products were even called “three sacred treasures.”
Creation of Dedicated Distribution Networks by Home

Appliance Manufacturers
The rapid development of household electrification in Japan during this period

prompted a major structural change in the way home appliances reached consumers.
This change was creation of a dedicated distribution network, or distribution kei-
retsu, by home appliance (consumer electronics) manufacturers. The phenomenon
occurred not only on the wholesale level but also on the retail level, transforming the
entire industry.
These dedicated distribution networks roughly followed this process10:
1. Between 1953 and 1955, the three major electric appliance companies—Toshiba,
Hitachi, and Mitsubishi Electric—each established a sales company to oversee
the wholesale stage (Toshiba Trading, Hitachi Home Appliance Sales, and
Ryoden Corporation), setting up their own distribution networks.
2. In response to the moves by the three major electric appliance companies, home
appliance manufacturers also began to create dedicated networks of wholesale
distributors. Leading the way was Matsushita Electric, which introduced a sales
company system in 1957 covering the entire country.
3. That year, Matsushita launched the “National Store Association” and began full-
scale efforts to form distribution linkages not just at the wholesale level, but also
at retail-level. This move spread to other home appliance manufacturers (Hitachi
in 1957, Toshiba and Sharp in 1958, and Sanyo Electric in 1959 all introduced
their own keiretsu retail systems).
4. By 1963 Matsushita Electric created a distribution network similar to the one
shown in Fig. 1.
5. Subsequently, around 1964–1965, the operations of keiretsu-affiliated whole-
salers and retailers deteriorated due to the economic recession. The decline
prompted home appliance manufacturers to work on rebuilding their distribution
networks, focusing on the development of sales companies and exclusive dealers
(e.g., introduction of a territorial sales system), and to strengthen the competi-
tiveness of keiretsu retailers.
6. As a result of a series of such rebuilding efforts, “by approximately 1970, the
distribution channel for consumer electronics linking manufacturers, affiliated
10
Kikkawa, T. (1998a). Shohi kakumei to ryutsu kakumei (Consumption revolution and distribu-
tion revolution). In the Institute of Social Science, The University of Tokyo, (Eds.), Nijuseiki
shisutemu 3 keizaiseicho II juyo to taiko (Twentieth-century system 3: Economic growth II
acceptance and resistance) (pp. 122–128). Tokyo: University of Tokyo Press.
“Matsushita’s Way of Doing Business” as Practiced by the “God. . . 173
[47%] National-brand Product

Sales Company
(178 companies)
Sales
Headquarters [25%] Dealers
Sales Office (17) Retail Stores
(Small clients)
y(210 dealers)
[25%] National-brand
Product Monthly Sales
Company (41 companies)
Matsushita
Electric
Special Equipment Special Large clients

Sales Equipment Sales
Headquarters [3%] Office (9)
(Large clients) Dealers
Fig. 1 Distribution Mechanism of Matsushita Electric in 1963.

Note: Figures inside [] indicate the ratio to sales.
Source: The Institute of Economic Research, Osaka City University (1974). The reorganization
process of wholesale distribution organizations for home electronics in Osaka
wholesalers, and affiliated retailers grew capable of functioning efficiently with a

stable and continuous product supply system, enabling mass production.11”
As is clear from the above discussion, Matsushita Electric (officially, Matsushita
Electric Industrial Company, now Panasonic), led by Konosuke Matsushita, played a
leading role in the creation of dedicated distribution networks among home appli-
ance manufacturers during the high growth era.
“Matsushita’s Way of Doing Business” as Practiced by

the “God of Management”
Durable consumer goods, including home appliances and passenger cars, dubbed the
“three sacred treasures” and “3C12”, added splendor to the era of high economic
growth. During this time, Konosuke Matsushita13 was a representative manager
among Japan’s consumer electronics manufacturers, and Soichiro Honda was rep-
resentative of automobile manufacturers. Konosuke built Matsushita Electric,
Japan’s largest home appliance manufacturer, and was called the “God of
11
Niida, H., & Mishima, M. (1991). Ryutsu keiretsuka no tenkai: Kateidenki (The development of
distribution keiretsu: Home electric appliances). In Y. Miwa, & K. Nishimura (Eds.), Nihon no
Ryutsu (Japanese distribution) (p. 110). Tokyo: University of Tokyo Press.
12
Collective expression referring to color TV, air conditioners and cars.
13
A new biography of Konosuke Matsushita: Yonekura, S. (2018). Matsushita Konosuke: Kimi
nara dekiru kanarazu dekiru (Konosuke Matsushita: You can do it for sure). Kyoto: Minervashobo.
Management.” His accomplishments included establishing a mass production and

mass sales system, introducing autonomous business divisions, and ensuring
profitability.
In the “New Year’s Dreams” section of the 1956 special New Year’s issue of
“Diamond” magazine, Konosuke stated, “I believe that the year thirty-one . . . will be
the first year in which our country will truly achieve great development.” True to his
words, Showa 31 (1956) became the inaugural year of Japan’s high economic
growth era. The protagonist of high economic growth correctly foretold its
beginning.
Konosuke and Matsushita Electric were able to play a leading role in Japan’s high
economic growth because of their adherence to the “Matsushita’s way of doing
business” i.e., “increasing sales of quality products at the lowest possible price.” In
the October 2, 1956 issue of Diamond magazine, in an interview titled “Konosuke
Matsushita – Success with High Quality and Low Price, ” Jyukichi Kono wrote:
“When a recession comes, business at my company picks up” – Mr. Matsushita’s words
contradict the common belief. But there is a reason why it works that way . . . . National14
products are inexpensive. When a recession starts, home budgets become tight . . . . Every-
one tries to buy the cheapest possible product, and that’s why they jump at National brand
products. That’s why the company becomes so busy . . . . No matter how cheap the price may
be, if the product is of poor quality, it is a failure. National products are inexpensive and yet
their quality is excellent. That is why his company becomes busy with the arrival of a
recession.
Lowering prices was the key element in the popularization of consumer durables that
drove Japan’s rapid economic growth. Konosuke, the “god of management,”
perfected the strategy of price cuts.
Konosuke Matsushita Before WWII
Matsushita was born in 1894 (Meiji 27) in Wasa Village (present-day Wakayama
City), Kaiso County, Wakayama Prefecture. His father, a middle-class landowner,
failed in the rice market trade and went bankrupt. After dropping out of elementary
school in his fourth year, Matsushita went to Osaka to work as a live-in servant, and
at the age of 16 he started working for Osaka Electric Light Co. “At the age of 15, he
happened to see a streetcar running in Osaka City. Impressed by its convenience, he
felt that the future would be the ‘age of electricity’. Reportedly, this inspired him to
seek ‘work in the field of electricity’.15”
14
A brand of Matsushita Electric Industrial.
15
Nakamura, K. (2001). Matsushita Konosuke: Naisei to hatsugen (Konosuke Matsushita: Intro-
spection and remarks). In Op. cit., S. Sasaki (Ed.), (The history of postwar Japanese entrepreneurs:
A timeline of anti-establishment minds) (p. 21).
Konosuke Matsushita Before WWII 175
At the age of 22 in 1917 (Taisho 6) Matsushita left Osaka Electric Light Co. What
“triggered his decision was his strong desire to introduce to the world his own
improved version of a socket. His creativity and enthusiasm in work made him
passionate about improving wiring fixtures and sockets. His prototype was com-
pleted painstakingly, but the boss did not approve it, and although Matsushita again
proposed improvements, the product was not adopted. As he was confident about his
creation, his disappointment was considerable and his anger deep.16”
Konosuke founded Matsushita Electric Housewares Manufacturing Works in
1918, introducing a series of practical products that incorporated many of his
ideas. The first, the “Attachment Plug,” and his first utility model patent, the “2
Lighting Cluster,” were developed in response to the needs of customers at the time.
Furthermore, the bullet-shaped, battery-powered lamp for bicycles, said to have laid
the foundation for Matsushita’s future growth, was epoch-making as well as prac-
tical. Building upon this, the cubic lamp was developed for general household use,
and was marketed under the National brand in the hope that it would become a must-
have for people around the country.17
“Riding the wave of the post-World War I electrification boom,18” Matsushita
Electric Housewares Manufacturing Works “entered the clothes iron, kotatsu [table-
style heater], stove, and other fields in Showa 2 [1927] under the slogan ‘electro-
thermal equipment that anyone can buy,’ and further expanded into radios in 1930
with the slogan ‘a radio that does not break down.’ . . . These were practical products
for the masses in the era of electrification. This customer-oriented devotion to
business underlay Konosuke’s dedication to what he called segmentation into
specialty fields.19”
In 1932 (Showa 7), Konosuke gathered 200 of his approximately 1000 employees
at the time at the Chuo Denki Club in Osaka and explained his “tap water
philosophy”—“Our mission as industrialists is to provide goods inexpensively
‘like tap water’ through ‘relentless production’.” Konosuke’s impassioned speech
inspired employees, and the entire venue was in an uproar.20“ Thus, ”tap water
philosophy,” the foundation of Konosuke’s management philosophy, was made
public.
Putting “tap water philosophy” into practice, Matsushita Electric Housewares
Manufacturing Works “focused on distributing quality products at affordable prices
for the average household from early on.” On the other hand: “Regarding prices,
‘both unreasonably high profits and overly small profits are out of the proper course
16
Ōmori, H. (1980). Matsushita Konosuke: Kaden okoku wo kizukiageta naiseiteki kigyoka”
(Konosuke Matsushita: Introspective businessman who built a home appliances kingdom). In Op.
cit., K. Shimokawa, A. Sakaguchi, H. Matsushima, Y. Katsura, & H. Ōmori, (Eds.), (Japanese
entrepreneurs 4: The postwar edition) (p. 223).
17
Ibid., p. 227.
18
Op. cit., Nakamura, K. (2001), p. 23.
19
Op. cit., Ōmori, H. (1980), p. 227.
20
of business,’ Matsushita strove to ensure that his business partners secured appro-
priate profits.” He was convinced that “selling products at a price based on fair profit
margins would not only stabilize the business of manufacturers and distributors but
would also make it safer and easier for consumers to buy.” Thus, in July 1935,
Matsushita began a campaign to sell products at a fair price based on the principle of
co-existence and co-prosperity. The term, “just price” (seika), meant “appropriate
price” (tekisei kakaku), and this wording was developed by Matsushita Electric
Housewares Manufacturing Works’ to distinguish it from the widely used
“established price” (teika). The company then implemented the “federation store
system” in November 1935 to “promote the philosophy of co-existence and
co-prosperity.21”
In 1933, Konosuke introduced a system of autonomous business divisions for
Matsushita Electric Housewares Manufacturing Works, and in 1935 reorganized the
company: “In December 1935, when the company was reorganized into Matsushita
Electric Industrial Co. Ltd., it spun off different business divisions, coming to
encompass nine subsidiaries such as radios, dry batteries/lamps, wiring equipment,
and metal products, and went on to become one of the leading electric appliance
manufacturers with a total of 4000 employees. During the war, the company worked
on manufacturing military radios, wooden boats, and even airplanes. At the end of
the war, it had more than 20,000 employees and about 60 factories.22”
Konosuke Matsushita After WWII
The day after the war ended, Konosuke gathered executives in the auditorium of the
Matsushita Electric head office, which had survived air raids, and “clearly stated his
policy to return immediately to civilian industry.” Four days later, “On August 20 of
Showa 20 [1945], he issued a memo titled, ‘Notification to all employees,’
encouraging them: ‘The basis of recovery is production. Let’s bring back our
company’s traditional spirit and devote ourselves to the nation’s reconstruction
and cultural revival23‘.”
However, reviving production at Matsushita Electric was not easy. In 1946 the
company was designated as a restricted company by the occupying Allied forces.
Classified as a zaibatsu-affiliated company, it was subject to dissolution. Konosuke
himself was also banned from holding public office.
However, “the [occupying Allied Powers’] ban on Konosuke’s holding public
office was lifted the following year, in part due to a petition filed by representatives
21
Website of Panasonic Corporation. Kigyo joho, rekishi, shashi (Company information, history
and corporate history). https://holdings.panasonic/jp/corporate/about/history/chronicle.html.
22
Op. cit., Nakamura, K. (2001), pp. 23–24.
23
Op. cit., Website of Panasonic Corporation. (Company information, history and corporate
history). https://holdings.panasonic/jp/corporate/about/history/chronicle.html.
Konosuke Matsushita After WWII 177
of the newly formed labor union of the company and of Matsushita Electric dealers.
The zaibatsu designation [of Matsushita Electric by the Allied Powers] was also
lifted in late 1949 as a result of persistent protests. At this time, the labor union
unanimously resolved to oppose Konosuke’s inclusion in the list of figures subjected
to the public office ban, and representatives carrying more than 10,000 petitions
stayed in Tokyo for about ten days to lobby the GHQ [General Headquarters of the
occupying Allied Powers] and the Japanese government.24” The labor union’s taking
the lead in lifting the public office expulsion measure was an unusual event for Japan
in the immediate post war era when labor-management conflicts were intensifying.
This support of management presented a contrasting picture to the situation at
Toshiba where labor-management disputes grew increasingly serious, disrupting
production. Good labor-management relations under Konosuke’s leadership enabled
Matsushita Electric to restore production soon after the war.
In 1950, Matsushita declared the “reconstruction” of Matsushita Electric to
domestic and overseas audiences. He toured the United States in 1951, and in
1952 formed a technical partnership with the Dutch manufacturer Phillips. This
placed Matsushita at the forefront of the electrification boom that began in Japan
around that time. He strongly emphasized rebuilding the sales system. As the
“corporate history” posted on the Panasonic website (the company name was
changed from Matsushita Electric Industrial to Panasonic in 2008) states:
Even before the 1950 declaration about reconstruction, the company already had begun to
strengthen its sales, technical, and manufacturing capabilities to enable active business
development in the future. In terms of sales, a sales company system was launched in
some regions in 1950, while the following year the company pressed ahead with strength-
ening the sales staff department at its headquarters and opened more satellite sales offices. It
actively promoted the establishment of sales companies across the country until
around 1959.
In parallel, establishment of companies selling products on monthly installments began
in 1951. Initially, these companies were only intended for radios, but later they began to
handle other large-size products.
The reconstruction of dealership organization also began. In 1949, the federation store
system was revived, and in some districts a fellowship “National Association” was formed
by leading members of the federation, before it evolved to the “National Retail Store
Association.25”
24
25
Op. cit., The website of Panasonic Corporation. (Company information, history and corporate
history).
Konosuke Matsushita (1965) holding the Atami Conference and exchanging views with attendees.
(Provided by Jiji Press Photo)
The high growth rate of the Japanese economy began in the mid-1950s in tune
with Matsushita Electric’s goal of “strengthening sales, technology, and manufactur-
ing capabilities.” The company, which was preparing a system for mass production
and mass sales of home appliances, was well positioned to lead the oncoming
“consumer revolution” and high economic growth.
Konosuke commandeered Matsushita Electric, which continued to grow with the
popularization of home appliances in Japan. Then in 1961, when the company’s
business was on a steady track, he became chairman, and withdrew from the
frontline.
The situation changed in the mid-1960s, however, when black-and-white TV,
electric washing machines, and electric refrigerators became commonplace. “In the
consumer electronics market, sales competition became fierce again, inventories
grew, and the ability of the distribution keiretsu to control prices declined. In
1964, nearly 150 of the 170 Matsushita Electric dealers posted losses, and dissatis-
faction toward Matsushita Electric grew.26” At this low point, in July 1965,
Konosuke invited dealers and sales company presidents across Japan to Atami and
held a roundtable discussion. Kiyoshi Nakamura wrote about this gathering:
At this meeting, later known as the “Atami Conference,” Konosuke stood for a total of
thirteen hours over a three-day period and listened to the voices of dissatisfaction. He
reflected on the company’s shortcomings in light of its “co-existence and co-prosperity”
philosophy and was finally reduced to tears. Reportedly, his reaction moved the audience
and changed the venue’s tense atmosphere. Konosuke returned to the frontline of
26
Konosuke Matsushita After WWII 179
management as Acting General Manager of the Sales Headquarters and implemented a new
sales system, establishing sales companies nationwide, a regional system of distributors and
retailers, and a thorough enforcement of cash-based settlement. His passion, grabbing the
hearts of the dealership owners, and his capacity to spearhead the reconstruction of the sales
system, displayed his continuing ability, even at the age of 69.27
After the Atami Conference, Matsushita Electric made a comeback and returned to a
growth track. Once again, Matsushita’s leadership drew increasing praise, cementing
his reputation as the “god of management.”
Looking back at Konosuke’s life, it was notable that he earnestly and directly
appealed to his stakeholders, generated great enthusiasm, and transformed the
situation, whether advocating the “tap water philosophy,” declaring the return to
civilian industry immediately after the war, or calling for restructuring of the sales
system at the “Atami Conference.” Hiroshi Ōmori, who wrote a brief biography of
Matsushita, calls Konosuke an “introspective entrepreneur.28” Similarly, Kiyoshi
Nakamura‘s biography of Konosuke is subtitled “Introspection and Remarks.29”
Konosuke’s remarks reflecting his introspection, inspired many people outside the
business world.
An example of Konosuke’s social endeavors was the establishment of two
organizations: the PHP Institute (Peace and Happiness through Prosperity) and the
Matsushita Institute of Government and Management (MIGM).
Hiroshi Ōmori described the establishment of the PHP Institute:
During the postwar social turmoil, facing a period of distress as a company and as an
individual, Konosuke asked himself what he should do, not only as an entrepreneur but also
as an individual human being and a member of society. After introspection, he put his ideas
into action, like a businessman. The result was the establishment of the PHP Institute in
November of Showa 21 [1946]. Konosuke says that he “was compelled” to launch PHP in
the face of the social and economic turmoil immediately after war defeat. While gathering
wisdom from all over the world, PHP aimed to study the meaning of human existence and
examine how we can achieve true prosperity, peace, and happiness for everyone. Ultimately
PHP would propose various measures for accomplishing prosperity.30
The other social undertaking, MIGM, is a human resources training organization that
Konosuke established in 1979 “spending 7 billion out of pocket to turn this into a
foundation.” Many politicians and business leaders are MIGM graduates.
Konosuke Matsushita, who led Japan’s high economic growth as the initiator of
the “consumer revolution,” retired as the chairman of Matsushita Electric in 1973.
He passed away in 1989 (Heisei 1).
27
Ibid., p. 33.
28
Op. cit., Ōmori, H. (1980), p. 254.
29
30
Op. cit., Ōmori, H. (1980), p. 254.
parts of it.
Case 16 Masaru Ibuka, Akio Morita,
Soichiro Honda, and Takeo Fujisawa: The
Groundbreaking Nature of Sony and Honda
Becoming Global Companies
Abstract This chapter introduces the entrepreneurs, Masaru Ibuka and Akio Morita
of Sony, and Soichiro Honda and Takeo Fujisawa of Honda Motor, all who played a
leading role in economic growth.
“Sony of the World”; “Honda of the World”
After Japan’s defeat, through the postwar reconstruction period and the era of high
economic growth, many entrepreneurs thrived. Looking solely at those involved in
the manufacturing industry, one can quickly name a diverse group of entrepreneurs.
In addition to Sazo and Konosuke, others of stature were Keizo Saji of Suntory,
Shojiro Ishibashi of Bridgestone Tire, Takeshi Mitarai of Canon, Toshio Iue of
Sanyo Electric, Tokuji Hayakawa of Hayakawa Electric, Masaru Ibuka and Akio
Morita of Sony, and Soichiro Honda and Takeo Fujisawa of Honda Motor. These
entrepreneurs played a leading role in economic growth, especially during that
lengthy period. It is also worth noting that the business sectors in which they were
active all involved consumer goods.
The dynamism of entrepreneurs during this period can be considered a continu-
ation of innovative entrepreneurial activities. Regarding continuity, the following
two points need clarification:
1. How did business opportunities for entrepreneurial activities spread throughout
the country in that period? (what were the objective conditions for innovative
entrepreneurial activities?)
2. Why were only certain business managers able to take advantage of the greater
business opportunities? (what were the subjective factors underlying innovative
entrepreneurial activities?)
© Kreab K.K. 2023 181

182 Case 16 Masaru Ibuka, Akio Morita, Soichiro Honda, and Takeo Fujisawa:. . .
In this case study, these two questions will be examined by looking at the paths of
four entrepreneurs who created the globally renowned companies Sony and Honda.1
Sony and Honda are selected for the following reasons:
1. Unlike other companies such as Matsushita Electric that existed before World
War II, Sony and Honda were founded after the war.
2. Both Sony and Honda are well known not only in Japan but also throughout the
world and are representative of global companies originating in Japan. The period
covered by this case study starts at the year after the end of WWII, when both
companies were founded, and continues to the final years of the high economic
growth era (the end of the 1960s), when Sony and Honda transformed into global
companies.
Profiles of the Four Businessmen
Masaru Ibuka was born in April 1908 (Meiji 41) in the town of Nikko, Kamitsuga
County (now Nikko City), Tochigi Prefecture. After graduating from Waseda
University with a Bachelor’s degree in electrical engineering, Ibuka worked for
PCL (Photo Chemical Laboratory), a subsidiary of Toho Pictures, and Nihon Ko-on
Kogyo, before establishing Japan Measuring Instruments (Nihon Sokuteiki
Kabushiki Kaisha) in November 1940 (Showa 15) during the war. After the war
he founded Tokyo Tsushin Kogyo in May 1946, the predecessor of Sony, with
others including Akio Morita, a naval engineer he had met around 1940. Tokyo
Tsushin Kogyo changed its name to Sony in January 1958, and Ibuka served as
president of the company from November 1950, becoming chairman in June 1971.
He passed away in December 1997.
Akio Morita was born in Nagoya, Aichi Prefecture, in January 1921 (Taisho 10),
thirteen years after Masaru Ibuka. Upon his graduation from the Department of
Physics at Osaka Imperial University, Morita immediately became a naval technical
apprentice and was soon promoted to lieutenant in the Navy. After the war, Morita
participated in the founding of Tokyo Tsushin Kogyo. With Ibuka in charge of
technology and Morita in charge of sales, the famed duo helped transform Sony into
a world-class company. Morita became vice president of Sony in December 1959,
1
Description, with modification, based on Kikkawa, T., & Nonaka, I. (1995). Kakushinteki
kigyosha katudo no keiki: Hondagiken to Sonii no jirei (Continuous succession of innovative
activity by businesspeople: Cases of Honda Motor Corporation and Sony). In T. Yui, & Hashimoto,
J. (Eds.), Kakushin no keieishi: Senzen sengo niokeru Nihon kigyo no kakushin kodo (The business
history of innovation: Japanese companies’ innovative behavior before and after World War II).
Tokyo: Yuhikaku Publishing Co., Ltd. Concerning Soichiro Honda, detailed description can be
found in Itami, H. (2010). Honda Soichiro: Yattemimo sende nani ga wakaru (Soichiro Honda:
What can you say if you haven’t even tried?). Kyoto: Minervashobo.; and Itami, H. (2012). Ningen
no Tatsujin Honda Soichiro (Soichiro Honda, a master of being human). Kyoto: PHP Institute, Inc.
Commonality of Their 1946 Founding and Early Product and Sales Strategies 183
president in June 1971, and then chairman in January 1976. He passed away in
October 1999.
Soichiro Honda, the founder of Honda Motor, was born in November 1906 (Meiji
39) in Komyo Village, Iwata County, Shizuoka Prefecture (present-day Hamamatsu
City). Upon his graduation from high school, Honda served as an apprentice at Art
Shokai, an automobile repair shop in Tokyo, and mastered mechanical engineering
skills. In 1934 he established Tokai Seiki, a piston ring manufacturer. Making a fresh
start after the war, Soichiro started the Honda Technical Research Institute in
Hamamatsu City in October 1946, and two years later, in September 1948, the
Honda Technical Research Institute was reorganized as Honda Motor Co. Soichiro
served as president of the company from its founding, and in October 1973, he and
the vice president, Takeo Fujisawa, retired in what was referred to as a “brilliant
departure.” He passed away in August 1991.
Takeo Fujisawa, the business partner of Soichiro and considered the “best right-
hand man” in Japanese business history, was born four years after Sochiro, in
November 1910 (Meiji 43) in Koishikawa Ward, Tokyo (now Bunkyo Ward,
Tokyo). After graduating from Keika Junior High School, Fujisawa established the
Japan Machinery Research Institute in April 1939. After the war, he met Soichiro
through an acquaintance and the two hit it off. Takeo joined Honda Motor as
managing director in October 1949, becoming vice president in April 1964. He
consistently oversaw Honda’s sales, accounting, and human resources operations
after joining the company, implementing “two-man management” with Soichiro,
who oversaw technology and development operations. Takeo retired simultaneously
with Soichiro in 1973 and passed away in December 1988.
Commonality of Their 1946 Founding and Early Product

and Sales Strategies
Looking back at the footsteps of Sony and Honda Motor during the period between
the postwar years to the era of high economic growth, we realize there was
remarkable similarity between them. Commonality of the two companies can be
summarized in four points:
First, the similarity in their beginnings and their early adoption of common
strategies for products and sales.
Tokyo Tsushin Kogyo (hereinafter referred to as Totsuko), the predecessor of
Sony, and Honda Technical Research Institute, the predecessor of Honda Motor,
were both established in 1946, in Tokyo and Hamamatsu respectively. At their
founding, both companies were the size of a small-town factory, with Totsuko
employing only about 20 people2 and Honda employing only 343 as of 1948, the
year that the company changed its name to Honda Motor.
In Totsuko’s founding charter, Masaru Ibuka emphasized that the company
would leverage its technological prowess to develop new products that no existing
large electronics manufacturers would touch. This spirit was Totsuko’s source of
energy as well as its basic product development strategy since the company’s
founding.
The magnetic tape recorder was the first of the “new products that no large
electronics manufacturer would touch,” and it was the catalyst for Totsuko’s subse-
quent growth. Ibuka and Morita, the key founding members of the company, were
both technicians, but with the launch of the tape recorder, a rough division of labor
was established—Ibuka was in charge of technical development and Morita in
charge of product sales.
In August 1950, Totsuko developed Japan’s first tape deck and tape, and released
them as the G-type tape recorder. Totsuko’s development of the tape recorder was
triggered by the strong interest shown by Masaru who managed to see an actual tape
recorder through someone associated with the occupying Allied forces. The G-type
tape recorder, commercialized after overcoming many obstacles, weighed 45 kg and
cost 160,000 yen at a time when the starting salary for civil servants was 5500 yen
(in 1951).4 Due to its high price, its weight, and unfamiliarity, the first tape recorder
in Japan showed no signs of selling even a couple of months after its release. It was
some time before the first device was sold; the buyer was an oden [fish cake stew]
eatery in Yaesu, Tokyo. Totsuko then stepped up efforts to market the G-type tape
recorder to the courts, at the time suffering from a shortage of stenographers, and he
succeeded in selling twenty units to the Supreme Court.5
However, realizing that the price and weight of the G-type tape recorder limited
marketability, Totsuko produced the H-type tape recorder, a smaller and lighter
version of the G-type, at about half the price. Launched in March 1951, the H-type
was a tape recorder with a price tag and performance suitable for audio-based
education in schools.
During the period of Allied occupation, “the Americans stressed the importance
of learning to listen and speak correctly and emphasized the importance of studying
2
Sony Corporation (1986). Sonii soritsu yonjusshunen kinenshi: Genryu (Commemorative book for
the 40th anniversary of Sony’s foundation: Origins) (p. 24). Sony; and The Public Relations Center
of Sony Corporation (Eds.) (1996). Sonii soritsu gojusshunen kinenshi: Genryu (Commemorative
book for the 50th anniversary of Sony’s foundation: Origins) (p. 26). Sony Public Relations Center.
3
Honda Motor Co., Ltd. (1955). Shashi soritsu nanashunen kinen tokushu (Commemorative book
for the seventh anniversary of its foundation). Tokyo: Honda Motor Co., Ltd.; and Honda Motor
Co., Ltd. (1999). Kataritsugitai koto: Charenji no gojunen (What we would like to say for the next
generation: 50 years of challenge) (p. 7). Tokyo: Honda Motor Co., Ltd.
4
Op. cit., Sony Corporation (1986), p. 66.
5
Ibuka, M. (1991). Wagatomo Honda Soichiro (My friend Soichiro Honda) (p. 117). Tokyo:
Gomashobo.
Commonality of Their 1946 Founding and Early Product and Sales Strategies 185
language [English].6” So the utilization of tape recorders in the classroom would also
benefit schools. According to Masaru Ibuka, thanks to the sale of the H-type tape
recorders, costing 80,000 yen apiece, Totsuko “suddenly had much better cash flow
and was able to spend generously for development.7”
Totsuko’s early tape recorders were mainly for institutional use (courts, schools,
etc.), rather than for home use. The fact that the “G” in the G-type tape recorder stood
for Government was indicative of this use. To spur marketing, Akio Morita person-
ally visited elementary and other levels of schools to teach students how to operate
tape recorders. Thus, Totsuko cultivated a market for a new product and taught the
market how to use it. Thus, education was an essential step for Totsuko in cultivating
a market for its new product. This process of educating the market would be repeated
for transistor radios and VCRs as the company grew.
Meanwhile, Honda Motor launched its operations with the production of the
A-type engine, an auxiliary engine attached to bicycles. The launch was in
November 1947, a year after the company’s founding. This A-type engine was
commonly called “Bata bata” [flap flap in Japanese] because of the sound it
generated.
The mass production of Honda Motor’s first full-fledged motorcycle, the Dream
D (two-stroke, 98 cc), began in August 1949. Coincidentally, this was the same
month that Totsuko successfully developed a prototype tape head and magnetic tape
recorder. At the time, there were no Japanese manufacturers producing both motor-
cycle bodies and engines. Thus, with the launch of the Dream D, Honda Motor
became the first Japanese manufacturer to produce both.
The Dream D was modified and marketed as the Dream E in October 1951. The
Dream E subsequently became Honda Motor’s mainstay product that put the
company on a growth track. From a technical standpoint, the Dream E’s chief
feature was the use of an overhead-valve (OHV) four-stroke engine, with a soft
exhaust sound and no exhaust smoke, unlike many of the competitor products that
used a two-stroke engine.
The two-stroke cycle performs the four processes of intake, compression, com-
bustion, and exhaust in one piston round trip, while the four-stroke cycle performs
these four processes in two round trips. The four-stroke cycles have advantages over
two-stroke cycles, including a softer exhaust sound, no smoke emission, better fuel
economy, lower oil consumption, and ease in starting.8 In addition, Honda’s novelty
6
Kawabe, N. (1988). Sonii no maketingu senryaku, 1945–79 [Sony’s marketing strategy,
1945–79].In Hiroshima daigaku sogo kagaku-bu kiyou I (The Bulletin of the School of Integrated
Arts and Sciences, Hiroshima University: Regional Cultural Studies), 14, p.144.
7
Op. cit., Ibuka, M. (1991), p. 118.
8
Honda Motor Co., Ltd. (1975). Honda no ayumi: Senkyuhyakuyonjuhachinen kara
senkyuhyakunanajugonen (The history of Honda: 1948 to 1975) (p. 9). Tokyo: Honda Motor
Co., Ltd.
lay in its adoption of the OHV for the production of four-cycle (stroke) vehicles,
instead of its competitors’ side-valve [flathead] style.9
The commercialization of the Dream D and Dream E models shows that, imme-
diately after its founding, Honda Motor adopted the same product strategy as
Totsuko—entering fields no other manufacturers touched.
Soichiro Honda had confidence in the technical field, but was an amateur in sales,
and was looking for someone whom he could entrust with sales. Through a friend’s
introduction, Soichiro met Takeo Fujisawa, and in 1949, Fujisawa joined Honda
Motor. Following release of the Dream E, Honda Motor launched the Cub-F
(hereafter referred to as Cub), a bicycle auxiliary engine, in June 1952. Fujisawa
developed the sales network for the Cub, which became famous for its “red engine,
white tank” catch phrase.
Like others in the same industry, until then Honda Motor’s products had been
sold through dealers. But Fujisawa, seeing that “if we relied only on dealers, [. . .] the
distribution pipeline would become clogged,” concluded that “we must envision a
larger distribution network.10” “Fujisawa put his focus on bicycle stores, which were
far more numerous than motorcycle retailers (300 to 400 nationwide at the time).
When the Cub was launched, Fujisawa sent letters to 55,000 bicycle retailers across
Japan, encouraging them to become Cub dealers. Eventually 15,000 bicycle stores
decided to carry the Cub.11 Thus, the division of labor within Honda Motor’s top
management was established early on, with Soichiro in charge of technology and
Takeo in charge of sales and finance.
As described above, Totsuko and Honda shared commonality in their early sales
strategies. Both manufacturers sought to cultivate new markets through active
involvement in sales. Akio Morita’s education of the market and Takeo Fujisawa’s
development of the sales network were clear examples. Another important com-
monality was the early emergence of sales-focused executives, such as Akio and
Takeo, at the top of the managerial hierarchy.
Overseas Business Trips in 1952 and Investment

for Competitiveness
The top executives of the two companies both made important international business
trips in 1952, just 6 years after the companies’ founding. As a result of these trips,
both made decisive investments that set them apart from their competitors.
9
See op. cit. Honda Motor Co., Ltd. 1999. Kataritsugitaikoto (Things that should be handed down
from generation to generation) (p. 24). Tokyo: Honda Motor Co., Ltd.
10
Fujisawa, T. (1974). Taimatsu ha jibun no tede: Honda to tomoni nijugonen (Make your own
products and sales networks: 25 years with Honda) (p. 14). Tokyo: Sanno University Press.
11
Op.cit., Honda Motor Co., Ltd. (1975), pp. 10–12.; and Op. cit., Honda Motor Co., Ltd. (1990),
pp. 25–26.
Overseas Business Trips in 1952 and Investment for Competitiveness 187
In April 1952, Masaru Ibuka of Totsuko traveled to the United States to conduct
market research on tape recorders, studying how tape recorders were being used
there. Contrary to his initial expectation, tape recorders were not widely used in
U.S. schools, and in terms of availability, Japan might even have been ahead of the
United States. Although his market research yielded little, through his keen techni-
cian’s sense he managed to learn about development of the transistor at America’s
Bell Telephone Laboratories.
Totsuko’s trip to the United States resulted in investments to strengthen compet-
itiveness that would set him apart from others and turn the company into the “Sony
of the world,” that is, purchasing the transistor patent and developing the transistor
radio.
In 1953, the year after Masaru Ibuka’s U.S. trip, Akio Morita also visited the
U.S. and signed an agreement with Western Electric, the parent company of Bell
Telephone Laboratories, for the use of the transistor patent. At the time, it was
believed that transistors were only for use in hearing aids, but Masaru judged that
hearing aids would not be a mainstream product and focused on finding a new use
for transistors: the development of transistor radios.
In reality, when Masaru Ibuka founded his company Totsuko, he was opposed to
the production of radios, the industry’s leading product at the time.12 Ibuka believed
that a small company like Totsuko would be unable to compete where major
manufacturers were locking horns to produce bulky radios attached with a power
cord, under the slogan “a radio for every household.” However, after obtaining
information about transistors in the United States, Ibuka began to envision personal
radios, “a radio for every person”—something small, portable and not requiring a
power cord.
“Totsuko spent an unimaginable amount of money and effort for a company of its
size to develop a transistor that the company was not even certain would ever
become a viable product” . . . “Anyway, it cost a lot of money.13” After persuading
the Gotanda Branch of Mitsui Bank and its main office Screening Division, Totsuko
was finally able to obtain a loan of the necessary size.
Totsuko launched Japan’s first transistor radio, the TR-55, and the world’s
smallest pocket transistor radio, the TR-63, in August 1955 and March 1957,
respectively, to favorable reviews. These products were marketed under the
“SONY” brand, in accordance with a policy decided in February 1955. The TR-63
was Totsuko’s first full-fledged export product, giving birth to the new English term
“pocketable radio” and helping to spread the Sony brand name worldwide.
Meanwhile, Soichiro of Honda Motor visited the United States and Europe in
November 1952, the same year as Ibuka’s trip to the United States. Honda personally
selected and purchased machine tools worth 450 million yen in total. These state-of-
12
Yamana, I. (1992). Soniiryu shohin kikakujutsu: Saisho saikeiryo koseino sekaihatsu no seihin ha
ikanishite umaretaka (The Sony Technique of Product Planning: How the ‘smallest, lightest, highly
functioning and world first’ products are born) (p. 24). Tokyo: Koshobo Publishers.
13
the-art machines were deployed one after another at Honda Motor’s new factories in
Saitama (Shirako and Yamato) and Shizuoka (Aoi) that the company built in
1953–1954 to establish a mass production system. Soichiro’s business trip was
directly related to investments to develop competitiveness, investments that would
play a key role in securing Honda’s position as Japan’s top motorcycle manufacturer.
After the restrictions on fuel sales that had been implemented under the Allied
occupation were lifted around 1950–1951, 29 motorcycle manufacturers sprang up
in Hamamatsu alone, and more than 100 nationwide. In 1950, Honda Motor was
only the fifth largest motorcycle manufacturer in Japan, but in 1951, the year
following the launch of the Dream E model, it became the third largest and from
1953 onwards it held the number one spot. During this period Honda Motor
purchased machine tools totaling 450 million yen and built the Shirako Plant and
other facilities. Due to the business crisis of 1954, to be discussed next, the company
temporarily lost its number one position to Tokyo Hatsudoki (Tohatsu) in 1955, but
as early as 1956 it regained the top spot, and has held the position ever since.14
Honda Motor, however, completing a series of new plants between 1953 and
1954—in Shirako (April 1953), Yamato (July 1953), and Aoi (April 1954)—and
establishing a mass production system, faced a crisis in 1954 that could have
destroyed the company. In January of that year, the company launched the Juno
scooter, which was plagued by a series of problems, including overheating.
The launch of the Juno marked Honda’s entry into the existing scooter market, but
the plastic molding introduced for the sake of novelty led to an unexpected defect:
the air-cooled engine, covered with plastic, frequently overheated.
The Cub, the auxiliary engine for bicycles, also saw its sales shrink around the
same time, as competitors began to sell similar products. Moreover, as soon as the
company upgraded its mainstay product, the Dream, from 200 cc to 225 cc, com-
plaints abounded and sales declined. Takeo Fujisawa’s plan was based on the
calculation that the monthly sales of 1 billion yen would cover the cost of purchasing
the 450 million-yen investment in machine tools and the costs associated with the
construction of the Shirako, Yamato and Aoi factories. The plan became untenable
when Honda Motor’s monthly sales fell to less than 500 million yen.
Under the business environment of the time, known as the 1954 recession, and
with problems and declining sales of the Juno, the Cub, and the 225 cc Dream
occurring almost simultaneously, Honda Motor was facing a crisis of survival. To
overcome crisis, Soichiro and Takeo worked vigorously as an engineer-and-busi-
nessman team, like two wheels moving in tandem.
Soichiro worked around the clock to identify the cause of the problems with the
upgraded 225 cc Dream. Meanwhile, Takeo judged that the era of a motorized bike
in the form of an auxiliary engine attached to the bicycle had come to an end, so he
14
The above description regarding the competition among the manufacturers in the Japanese
motorcycle market is based on Tomitsuka, K. (1980). Otobai no rekishi: Mekanizumu no hensen
to gijutsushatachi wo meguru dorama (The history of motorcycles: Changing mechanisms and the
drama among engineers) (pp. 81–82; 125–127; 176–184). Tokyo: Sankaido Publishing Co., Ltd.
Overseas Business Trips in 1952 and Investment for Competitiveness 189
stopped production of the Cub and sold some of the machine tools he had just
imported to Kobe Steel.15 Furthermore, he temporarily halted production of the more
powerful 225 cc Dream until Soichiro could pinpoint the cause of its problems, and
instead concentrated the company’s production effort on the older 200 cc Dream
model during the consecutive public holidays of May to secure future cash flow.
Honda Motor’s labor union, just established the previous year in 1953, decided to
cooperate with Fujisawa’s policy and “unified labor-management efforts were com-
mitted to increasing the production of the 200 cc Dream.16”
However, it was impossible for Honda Motor to survive its 1954 crisis only
through the sale of machine tools and the emergency production of the older 200 cc
Dream. Therefore, Takeo decided to ask Mitsubishi Bank for a loan. Until that point,
Honda Motor had not relied heavily on bank loans for plant construction or equip-
ment purchases. On the contrary, dealers around Japan deposited proceeds from the
Cub sales to the Kyobashi branch of Mitsubishi Bank, making Honda Motor a major
customer who entrusted the bank with an immense amount of funds.17 Tokita
Suzuki, manager of the Kyobashi branch of Mitsubishi Bank, who received a loan
request from Honda Motor, “enthusiastically explained his belief [in Honda] to the
bank executives18“in order to gain approval for the loan. Thanks in part to such
cooperation, Honda Motor was able to obtain a loan of 200 million yen from
Mitsubishi Bank.
In addition, Takeo gathered 300 representatives of Honda Motor’s parts suppliers
and explained to them that Honda Motor would be unable to pay for the parts for
some time and that it would be unable to place fresh orders. He admitted that this was
an unreasonable request, and implied that inevitably some of the suppliers would
give up on Honda Motor. Although a few suppliers did stop doing business with
Honda, most expressed gratitude to Honda for advancing their business this far and
agreed to continue working with the company.19
Meanwhile, Soichiro finally discovered that the cause of the problem in the
225 cc Dream was its carburetor, promptly resolving the problem soon after. Thus,
thanks to their combined efforts working as a “two-man management” team, Honda
Motor was able to overcome the company’s greatest crisis since founding. As
mentioned above, after 1956, Honda came to be consistently ranked first among
Japanese manufacturers in terms of motorcycle production volume.
15
See: Yamamoto, Y. (1993). Fujisawa takeo no kenkyu: Honda Soichiro wo sasaeta meihosayaku
no himitsu (Studies of Takeo Fujisawa: Secrets of the great aide who supported Soichiro Honda)
(pp. 111–127). Tokyo: Kanoshobo Publishers.
16
Op. cit., Honda Motor Co., Ltd. (1975), p. 21.
17
Sakiya, T. (1982). Honda Motor Co., Ltd.: The men, the management, the machines (p. 87).
Tokyo: Kodansha International Ltd.
18
Nishida, M. (1983). Kataritsugu keiei: Honda to tomoni sanjunen (Handing down business
management to the next generation: 30 years with Honda) (p. 66). Tokyo: Kodansha Ltd.
19
Op. cit., Sakiya, T. (1982), pp. 96–97.
Full-Scale Entry into Overseas Markets from 1957–1958
The third commonality, as well as simultaneity, shared by Sony and Honda was that
both entered full-scale into overseas markets from 1957 to 1958, becoming global
companies as early as more than ten years after their founding. The two grew to be
global companies in the following ways:
1. In March 1957, Totsuko launched the transistor radio TR-63, their first full-scale
export product,20 and in August 1958 Honda launched the Super Cub, the leading
export.21
2. In June 1959, Honda established American Honda Motor, and in February 1960,
Sony established Corporation of America (Totsuko changed its name to Sony in
January 1958).
3. In June 1961, Sony became the first Japanese company to issue ADRs (American
Depositary Receipts), and in December 1962, Honda Motor also issued ADRs.
Sony’s “growth made progress in parallel with its globalization as a company. Or
rather, Sony was able to become the major company we know today by building on
its experience of becoming a global company.22” The company’s first full-fledged
export product was the transistor radio TR-63, launched in 1957 during Totsuko’s
time. As mentioned earlier, in 1955 the company decided to put the “SONY” mark
on its products, because of English speakers’ difficulty in pronouncing “Tokyo
Tsushin Kogyo” or “Totsuko”. Totsuko was determined to make the Sony name
known in overseas markets.
In January 1955, Totsuko received an order for 100,000 units of the TR-52
transistor radio (nickname: the U.N. building-shaped radio), which it had developed
as a prototype, from the major American watch manufacturer Bulova. But Akio
Morita turned down the order because it wouldn’t allow the use of Sony’s brand
name on the radios, even though it was the type of order the company desperately
wanted at the time.23 In 1958, the company name was officially changed to Sony
Corporation, so as to spread the brand name internationally. In 1960, Sony
established a local sales company, the Sony Corporation of America, around the
same time that the Sony brand name began to penetrate the U.S. market through the
successful export of transistor radios. In September 1962, Sony Corporation of
America opened a showroom in a prime location in New York City, which was
referred to as the “Sun [Japanese] flag on Fifth Avenue.24”
20
21
Op. cit., Fujisawa, T. (1974), p. 71.
22
Kano, A. (1982). Sony shinjidai: Shukakuki wo mukaeru mirakoka senryaku (New era for Sony:
Mirror effect strategy that is about to bear fruit) (p. 1). Tokyo: PRESIDENT Inc.
23
Op. cit., Sony Corporation (1986), p.142; and op. cit., The Public Relations Center of Sony
Corporation (Eds.) (1996), pp. 84–85.
24
Maeda, K. (1979). Kaigai maketingu no hatten: Sonii to hondagiken no kaigai kogaisha (The
development of overseas marketing: Overseas subsidiaries of Sony and Honda Motor). In op.cit.,
Full-Scale Entry into Overseas Markets from 1957–1958 191
In 1961, Sony became the first Japanese company to offer its shares to the general
public as American Depositary Receipts (ADRs), and the move was well received.
This was an opportunity for the company to directly finance its overseas operations.
It also meant that the U.S. market recognized Sony as a top-tier international
company. Sony‘s stock was listed on the New York Stock Exchange in
September 1970.
Meanwhile, Honda Motor also made early efforts to globalize the company. “In
Showa 25 [1950], we were the Honda Technical Research Institute of Hamamatsu,
but today we are the Honda of Japan. This year, we must become the Honda of the
world.25” This sentence is part of the “President’s Hope” by Soichiro Honda that
appeared in the company’s Monthly Report No. 6, but it is important to note that
“this year” is 1952, only six years after the company’s founding. It is said that
employees at the time could not help but smile at Soichiro’s insistence on global
conquest.
However, in March 1954, when the company was facing crisis, Soichiro
announced his intention to enter the Tourist Trophy (TT), the world’s top motorcycle
race, in order to inspire his employees and others involved. The resulting success in
the TT and other races helped to dramatically raise Honda’s international profile as a
motorcycle manufacturer.
Honda Motor’s first full-fledged export product was the Super Cub (50 cc,
4.5 hp), a lightweight motorcycle launched in 1958. According to the corporate
history, “The Super Cub experienced explosive sales immediately after launch. We
can say that we joined the ranks of the modern mass-production, mass-distribution
companies thanks to the Super Cub.26” In marketing the Super Cub, Honda Motor
rebuilt its motorcycle sales network in Japan, again capitalizing on its network of
bicycle dealers. In April 1960 the company established the Suzuka Plant (Mie
Prefecture) and set up a mass production system for the Super Cub.
The Super Cub was well received not only in Japan but also in the United States
and other countries. Its marketing in the United States was spearheaded by a locally
incorporated sales unit, American Honda Motor Co. (Amehon), established in 1959.
In marketing the Super Cub, Amehon launched its famous “You Meet the Nicest
People on a Honda” campaign. An article in Life magazine at the time, “America in
Love with Honda,” stated:
Honda has created a new way of thinking about motorcycles. Gone was the unappreciated
image of rough guys in black leather jackets that had long been associated with motorcycles,
and in its place is an image of fun, an image of happiness. . . that many Americans could
finally embrace. In short, Honda products gave riding a motorcycle a social dignity all its
own. Today, Honda has truly captivated the American market.27
K. Nakagawa, H. Morikawa, & T. Yui (Eds.), (The enlarged edition of basic knowledge on modern
Japanese business history) (p. 379).
25
Requoted from op. cit., Honda Motor Co., Ltd. (1975), p. 42.
26
Ibid., p. 50.
27
Requoted from ibid., p. 41.
The “Nicest People on Honda” campaign completely changed the image of

motorcycles in the United States. By successfully replacing the traditional image
of “a vehicle for rough men in black leather jackets” with a new image of “a handy
vehicle for the nifty and the thrifty,” Honda Motor effectively created a brand new
product line, a “friendly motorcycle,” for the sizeable U.S. market.28 The overall
Honda brand also became a household name in the United States. Following Sony‘s
lead, Honda Motor started offering its shares as ADRs in 1962.
Entry Into Large Established Markets in 1963–64
The fourth simultaneous and shared attribute was the 1963–64 entry by both
companies into established, large markets that were initially on the periphery of
their core businesses. Honda entered the automobile market in 1963 and Sony made
a full-scale entry into the television market in 1964.
Honda Motor, which had firmly established itself as a motorcycle manufacturer,
became directly involved in automobile manufacturing when a bill for Extraordinary
Measures for the Promotion of Specified Manufacturing Industries was drafted in
1962. Honda Motor hastily decided to enter the four-wheeled vehicle market after
determining that if the bill passed, new entrants would be regulated and could
effectively be prevented from manufacturing automobiles permanently. In August
and October 1963, the company launched the T360 light truck and the S500 compact
sports car, respectively, marking its entry into the automobile market. In March
1967, Honda began selling its first full-fledged four-wheeled vehicle, the N360, a
micro-passenger car.
The Honda N360 was less expensive than its rivals, the Subaru 360 and Mazda
Carol, and had superior space utility. The model became the top-selling microcar as
early as May 1967, two months after its launch, and by May 1969 the number of
units registered in Japan exceeded 300,000 (reaching a sales plateau in the fall of that
year due to a defect found in June 1969).29 Honda Motor then launched the 1300
sedan in May 1969 and began to produce small passenger cars as well.
In parallel with its entry into four-wheeled vehicles, from 1964–1968 Honda
entered the Formula One (F1) division of the World Grand Prix, the pinnacle of
motor racing. Its participation in F1 served to raise Honda’s international profile as a
four-wheeled vehicle manufacturer. For Honda, F1 was also a “laboratory with
wheels,30” and according to Soichiro Honda, the requirements for competing in
28
Ibid., p. 41.; and op. cit., Honda Motor Co., Ltd. (1999), pp. 121–125.
29
Yoshida, T. et al. (1991). HONDA 360 STORY: Chiisana kyojin senkyuhyakurokujusannen kara
senkyuhyakunanajuyonen (HONDA 360 STORY: Small giant, 1963 to 1974). (pp. 112–113).
Tokyo: Miki Press.
30
Entry Into Large Established Markets in 1963–64 193
the race were not different from those for manufacturing mass market vehicles.31 In
November 1964 Honda Motor built a new main plant for four-wheeled vehicles in
Sayama, Saitama Prefecture, and in October 1967 began production of four-wheeled
vehicles at its existing Suzuka Plant (in parallel with motorcycle production).
Having established a mass production system, Honda Motor also focused on
establishing a sales system for four-wheeled vehicles. For the sale of these vehicles,
an important role was played by the SF (Service Factory) that was conceived by
Takeo Fujisawa and whose construction began in July 1964.
At that time, existing major manufacturers such as Toyota and Nissan had already
established complete dealer networks, and it was difficult to establish a new sales
network of the same type. Therefore, Takeo decided to have his motorcycle dealers
handle Honda’s four-wheeled vehicles. As it was difficult to set up a new automobile
repair shop within the floor space of a motorcycle dealer, Honda Motor paid for the
construction of service and repair shops that could be shared by several dealerships
in various locations. These were the Service Factories. In addition, motorcycle
dealers with too small a floor space for even displaying automobiles were asked to
place only catalogs and posters. Honda Motor paid for the construction of a joint
exhibition hall and business meeting room to be shared by multiple small motorcycle
dealers. Honda continued to use motorcycle dealers to sell automobiles until 1973,
when the SF (Service Factory) system was eventually dissolved.
Meanwhile, Sony’s full entry into the television market began with the comple-
tion of the Chromatron-type color television in September 1964. Although Sony had
already produced micro-TVs and other products, they were for only a specialized
segment of the television market. The Chromatron color tube system used by Sony
to produce color televisions had a brighter picture than the shadow mask systems
used by many of its competitors. On the other hand, the Chromatron type had the
disadvantage of being more difficult to work with than the shadow mask type.
Masaru Ibuka and his team worked on developing the product, saying “Sony is an
innovator. There is no point in doing the same thing as others,32” but were making
slow progress. It was almost as if Sony was going to “commit suicide with
Chromatron.33” Finally, in 1964, Sony succeeded in developing a Chromatron
color television, but had to introduce a different type shortly thereafter—the
Trinitron system. In developing the latter, the research experience with the
Chromatron-type helped greatly. The new Trinitron color TVs that went on sale in
October 1968 were well received and Sony rapidly increased its share in Japan’s
television market.
31
See NHK reporting team (1992). Gijutsu to kakutoshita otoko: Honda Soichiro (Soichiro
Honda—A man who fought with technology) (p. 45). Tokyo: NHK Publishing, Inc.
32
Op. cit., Sony Corporation (1986), p. 60; and op. cit., The Public Relations Center of Sony
Corporation (Eds.) (1996), p. 144.
33
Op. cit., The Public Relations Center of Sony Corporation (Eds.) (1996), p. 310.
With Sony’s full-scale entry into the television market under the leadership of
Akio Morita, the company embarked on developing its own dedicated distribution
network in Japan, centered on Sony Shops:
By around 1965, Sony's domestic sales were growing with the help of store-front sales and
discount shops that were emerging at that time. However, the explosive success of Trinitron
color televisions in Japan led to a turning point for Sony's domestic sales, with the creation of
its own dedicated network of stores.34
Objective Conditions That Enable Innovative

Entrepreneurial Activities
As we have seen, four entrepreneurs—Masaru Ibuka, Akio Morita, Soichiro Honda,

and Takeo Fujisawa—played important roles in the growth of Sony and Honda from
their founding in 1946 through the 1960s. At the same time, although the two
companies belonged to different business sectors, they shared a remarkable degree
of timing and of dynamics of growth. The similarity strongly suggests that objective
conditions underpinned the innovative entrepreneurship of the top management of
Sony and Honda. These conditions were evident in the series of entrepreneurial
activities that emerged in Japan between the postwar reconstruction period and
the high economic growth period, as described in the first part of this case study.
In the introduction to Case 16, two issues were presented, and here we must examine
the first: what were the objective conditions that allowed for innovative entrepre-
neurial activities?
Such objective conditions from the immediate postwar to the 1960s can be
categorized as demand-side and supply-side. On the demand side, disposable income
of the masses increased and the need for consumer goods expanded and deepened.
Referred to as the “consumer revolution” and the “arrival of a mass consumer
society,” such phenomena were not limited to Japan, but also manifested extensively
in the western world, including the United States.
As disposable incomes increased, consumers developed greater desire to use their
time more efficiently and to expand their activities geographically. Motorcycles and
passenger cars satisfied these new temporal and spatial needs. In response to the
growing desire for convenience in family life, home appliances spread rapidly, and
went beyond “one per family” to “one per person.” Televisions represented family
use items; transistor radios represented personal use items.
Many companies that embodied innovative entrepreneurial activities in Japan
during that period were involved in production of consumer goods. Thus the
expansion and deepening of the consumer goods market, thanks to the increase in
disposable income of the masses, created the historical and objective conditions for
entrepreneurial activities.
34
Op. cit., Kawabe, N. (1988), p. 157.
Objective Conditions That Enable Innovative Entrepreneurial Activities 195
On the supply side, changes in competitive conditions in Japan provided oppor-

tunities for emerging manufacturers. As the consumer goods market broadened and
deepened, and business opportunities expanded, one might assume that large
established manufacturers would be first to take advantage of the opportunities.
Many of the existing large manufacturers, however, deliberately chose not to enter
new areas or were unable to do so because of external factors.
In cases where large existing manufacturers were unable to take advantage of new
opportunities due to external factors, the series of changes in the postwar environ-
ment, such as the dissolution of zaibatsu, ban on monopolies, and labor union
offensives, bore significant meaning. A case in point is Toshiba, which had the
potential to dominate the consumer electronics market, but was adversely affected by
the rough waves of postwar reforms and labor union offensives.35 Restrictions on
fuel sales continued even during the Allied occupation and may have delayed
existing motorcycle manufacturers, working to the advantage of newly founded
Honda Motor.
On the other hand, in cases where existing manufacturers chose not to enter the
market, it is important to note that the speed of expansion and deepening of the
consumer goods market exceeded existing firms’ pace of growth. As the need for
consumer goods deepened, existing manufacturers first had to increase the produc-
tion of and improve the quality of products they had already commercialized. After
taking account of expansion in the consumer goods market, the companies entered
promising new areas, but the scope of their entry was inevitably limited.
The hesitation or reluctance of large firms explains why Toshiba, Hitachi, and
Mitsubishi Electric, which entered the television market early on36 did not seriously
pursue the development of transistor radios despite showing interest in transistor
technology. No large manufacturers that could have posed a serious threat to Honda
Motor were among the companies that entered the motorcycle market after the lifting
of fuel sale restrictions. (Around 1955, it was not Kawasaki Heavy Industries that
embarked on motorcycle production but rather its affiliate, Kawasaki Meihatsu
Kogyo. Kawasaki Heavy Industries would later take over Kawasaki Meihatsu
Kogyo, but as of 1955, the company’s focus was not on motorcycles.37)
35
Op. cit., Nakamura, K. (1992), pp. 120, 132–133.
36
See op. cit., Sony Corporation (1986), pp. 103–104; and op. cit., The Public Relations Center of
Sony Corporation (Eds.) (1996), p. 674.
37
For discussion above see: op. cit., Tomitsuka, K. (1980), pp. 82–184.
Subjective Factors That Enable Innovative Entrepreneurial

Activities
Obviously the existence of the objective conditions discussed above did not enable
all of the new manufacturers and their top managers active from postwar through the
1960s to embody innovative, entrepreneurial activities. Only a few exceptional
companies and their top managers achieved this.
Masaru Ibuka, Akio Morita, Soichiro Honda, and Takeo Fujisawa were outstand-
ing because they built Sony and Honda into exceptional companies, but how did
their actions differ from those of other top managers? The second discussion point
raised at the beginning of this case study provides some answers to the question:
what subjective factors enabled innovative entrepreneurial activities?
The following five subjective factors enabled innovative, entrepreneurial
activities:
1. Securing a competitive position by developing new markets and differentiating
products.
2. Turning attention overseas from an early stage.
3. Establishing exclusive brand and sales channels.
4. Taking investment risks to differentiate themselves from competitors.
5. Having financial backers.
The significance of new markets and differentiated products (factor 1) is evident
in Totsuko’s founding charter. Sony‘s insatiable pursuit of new markets and product
differentiation was an important feature of its product development strategy. In fact,
Totsuko (later renamed Sony) was a step behind Kobe Kogyo in the mass production
of transistors. Both Totsuko and Kobe Kogyo received subsidies for mining and
industrial testing and research from the Ministry of International Trade and Industry
(MITI) for use in mass production of transistors: Kobe Kogyo in 1954 and Totsuko
in 1956. However, Totsuko was ahead of Kobe Kogyo in developing practical
application of transistors. Totsuko completely surpassed Kobe Kogyo in creating a
new use—transistor radios—and in cultivating a new market.38
Honda also put much effort into differentiating its product from those of com-
petitors and on market cultivation. The company was the first to introduce an OHV
four-stroke engine in the Dream E model because of its focus on riding comfort,
reducing exhaust smoke and noise. The N360 microcar was also well received in the
market because of its lower price and superior space utility compared to similar
vehicles from other companies. Honda’s most dramatic market cultivation success
came when it launched the “You Meet the Nicest People on a Honda” campaign in
the United States with the launch of the Super Cub. To borrow an expression from
38
The above description of competition between Totsuko and Kobe Kogyo is based on Matsui,
K. (1979). Erekutoronikusu-sangyo: Senkushatachi (The electronics industry: The pioneers). In In
op.cit., K. Nakagawa, H. Morikawa, & T. Yui, (Eds.) (The enlarged edition of basic knowledge on
modern Japanese business history) (p. 403).
Subjective Factors That Enable Innovative Entrepreneurial Activities 197
the company’s corporate history, with this campaign, Honda Motor succeeded in
triggering the “eruption” of the U.S. “sleeping market.39”
The importance of expanding overseas (factor 2) is clearly demonstrated by the
series of overseas business trips made by the top management of Totsuko and Honda
Motor in 1952, only six years after the companies’ founding. These trips led to
decisive investments for competitiveness. The shared timing and attributes between
the two companies in terms of early overseas expansion is also evident in the
following: (1) the launch of the transistor radio TR-63 in 1957 and Super Cub in
1958 and the start of full-scale exports; (2) the establishment of a local subsidiary in
the United States in 1959–1960; and (3) the issuing of ADRs 1961–1962 ahead of
other Japanese companies. Sony and Honda Motor quickly became leading Japanese
companies active on the global stage, only a little more than a decade after their
establishment.
The importance of establishing their own brand and sales channels (factor 3) is
illustrated by two symbolic episodes already mentioned. The first was when Akio
Morita of Totsuko turned down an order for 100,000 units of the transistor radio
TR-52 from the American watchmaker Bulova because it wouldn’t allow the use of
Sony’s brand name on the radios. The second, when Takeo Fujisawa of Honda
Motor used bicycle dealers to sell motorcycles and motorcycle dealers to sell
automobiles, thus creating a sales network for the company’s products. The staffs
of Sony and Honda included not only technological experts such as Masaru Ibuka
and Soichiro Honda, but also sales experts such as Akio Morita and Takeo Fujisawa.
This combination was an essential precondition for the growth of both companies.
Honda’s establishment of a motorcycle sales network, along with its early
establishment of a mass-production system, was a major factor in defeating rival
manufacturers. Marusho Motor (a motorcycle manufacturer) produced the Lilac
model that triumphed in the Asama Kogen Race (motorcycle endurance race) in
1955 over the Dream, and at one time was poised to become a close competitor of
Honda Motor. However, Masashi Ito, Marusho’s former president, stated that the
company eventually went bankrupt in 1961 because it lacked the sales network of
Honda Motor.40
There is no denying that Sony‘s distribution network was weaker than
Matsushita’s, and that Honda’s automobile sales network was less powerful than
those of Toyota and Nissan. Nevertheless, Sony and Honda, both latecomers in the
consumer electronics and automobile industries, successfully established their own
sales networks despite having to compete against the more established companies.
The market intelligence gathered through their own sales networks proved useful for
the product development of both companies.
Taking investment risks to achieve competitiveness (Factor 4) includes Honda’s
purchase of new machine tools and construction of mass-production plants for the
39
40
Based on Hamamatsu Pong Pong Story, a TV program that aired on NHK General TV on March
5, 1992.
Super Cub and N360, and Sony‘s (or Totsuko’s) purchase of transistor patents and
R&D for Chromatron-type color TVs. These investments were risky considering the
capital size of the two companies at the time, and in fact some of them ended in
failure. Honda Motor’s purchase of machine tools for the Cub (sold to Kobe Steel)
and Sony‘s development of the Chromatron format (switched to the Trinitron
format) were examples that resulted in failure.
Overall, however, these major investments served as decisive turning points in
the companies’ efforts to distinguish themselves from, and triumph over, their
rivals.41 We must not forget that good labor-management relations42 and the coop-
eration of their main banks enabled Sony and Honda to carry out risk-taking
investments.
Financial backers (Factor 5) was closely linked to cooperation from the main
banks: Mitsui Bank‘s loan to Totsuko for the transistor patent in 1953 and Mitsubishi
Bank‘s bailout loan to Honda Motor during the financial crisis of 1954, were
essential in their becoming global companies—the “Sony and Honda of the
world.” We cannot overlook, however, the high evaluation of potential for Totsuko
and Honda Motor made by bankers at branch offices. Their convincing arguments to
their respective superiors were crucial to securing these loans. In summary, the
active entrepreneurial activities of Masaru Ibuka and Akio Morita, and Soichiro
Honda and Takeo Fujisawa, themselves enabled these bank loans. In this sense, the
existence of financial supporters can be regarded as one of the subjective factors for
innovative entrepreneurial activities.
This section highlighted five subjective factors behind the innovative entrepre-
neurial activities of Ibuka, Morita, Honda, and Fujisawa. Others who successfully
pressed ahead with innovative entrepreneurial activities from the end of the war
through the 1960s seem to have shared all or some of these five factors.
41
J. C. Abegglen and G. Stalk discuss how Honda Motor defeated its rival, Tokyo Hatsudoki, by
exercising the first-move, sure-to-win cycle. See – Abegglen, J. C., & Stalk Jr., G. (1986). Kaisha:
Jidai wo tsukuru dainamizumu (Company: Dynamism that creates an era) (S. Ueyama trans.)
(pp. 78–81). Tokyo: Kodansha Ltd. – where the first-move sure-to-win cycle is practically the same
as the differentiated investments indicated here.
42
To overcome the business management crisis in 1954, Honda Motor had the cooperation of the
labor union. At Sony, too, the relationship between management and labor was generally good
despite temporary conflict during 1960–61.
Subjective Factors That Enable Innovative Entrepreneurial Activities 199
parts of it.
Case 17 Toshio Doko: The Sense of Crisis
Harbored by the “Fine Physician
of the Business World” and “Mr.
Administrative Reform”
Abstract This chapter introduces Toshio Doko, president of Ishikawajima Ship-

yard (which later changed its name to Ishikawajima Heavy Industries (IHI)). Doko
later became chairman of Toshiba and Keidanren. He harbored a sense of crisis in the
1980s, when the Japanese economy was maturing.
Building the Foundation for “Doko the Turbine Man”
Our last case study from World War I to the 1980s “growth era” is Toshio Doko.1
Doko was called “the fine physician of the business world” because he successfully
revived a series of companies that had fallen into crisis. In his later years as chairman
of Keidanren (Japan Federation of Economic Organizations) and as “Mr. Adminis-
trative Reform (Gyokaku),” he also devoted himself to the revitalization of the
Japanese economy and society. Before he passed away, Doko warned the Japanese
who were riding the economic bubble era to prepare for the end of the “growth era.”
Toshio Doko was born in 1896 (Meiji 29) in Ono Village, Mitsu County (present-
day Okayama City), Okayama Prefecture. He was the second son of Kikujiro, a
farmer, and his wife Tomi. The Doko family had been devout followers of Nichiren
Buddhism for generations and Toshio was raised under his mother’s strict discipline
and devotion to education and to Nichiren Buddhist teachings. Tomi was not only
devoted to her own children’s education but also to girls’ education in general,
believing that “a nation without capable mothers will decline.” In spite of the
difficult circumstances during World War II, Tomi’s 1942 (Showa 17) founding in
Yokohama City of Tachibana Gakuen, a school for girls, reflected her enthusiasm for
the cause.
1
For details regarding Toshio Doko, see Kikkawa, T. (2017b). Nihon no kigyoka 3 Doko Toshio:
Bijon to baitarithii wo awasemotsu kaikakusha (Japanese entrepreneurs 3: Toshio Doko—a
reformer with both vision and vitality). Kyoto: PHP Institute, Inc.: Itami, H. (2017). Nandai ga
tobikomu otoko Doko Toshio (Toshio Doko, a man who receives a torrent of difficult problems).
Tokyo: Nikkei Publishing Inc.
© Kreab K.K. 2023 201

202 Case 17 Toshio Doko: The Sense of Crisis Harbored by the “Fine. . .
In 1911, Toshio entered the private Kanzei Junior High School (now Kanzei High
School), where he met the principal, Sataro Yamauchi. A man of character who
combined strictness and gentleness, Yamauchi told him: “Do what you think to the
best of your ability. Do what you think is worth doing, not what others force you to
do.2” These words became deeply engraved in young Toshio’s heart.
After graduating from Kanzei Junior High School, Toshio entered the mechanical
engineering department of Tokyo Higher Technical School in 1917 (Taisho 6). At
the school, he became head of a student movement to raise the status of the school to
a university, sometimes leading demonstrators. This movement continued even after
his graduation, and in 1929 (Showa 4) Tokyo Higher Technical School became
Tokyo Institute of Technology, the university it remains to this day.
While a student at Tokyo Higher Technical School, Toshio came across a book in
a used bookstore in Kanda, Tokyo, titled “Steam Turbines.” From then on, he
devoured every technical book on turbines written in English or German that he
could get his hands on. The language barrier was high, but Toshio overcame it by
finding English and German speakers working in Tokyo, teaching them Japanese in
exchange for English and German lessons. These efforts paid off, and before long he
was the most knowledgeable person on turbines at Tokyo Higher Technical School,
more so than any of the other students or teachers. This expertise became the
foundation for his future nickname, “Doko the Turbine Man.”
Delivery of the First Domestically Produced Turbine
In 1920, Toshio Doko graduated from Tokyo Higher Technical School and went to
work at Ishikawajima Shipyard. Although many of his classmates joined better
paying companies, Toshio chose Ishikawajima because, at the time, the Shipyard
focused on turbine research and development, matching Toshio’s strong desire to
help domesticate production of turbines in Japan.
For Toshio, the opportunity to lead turbine research and development at
Ishikawajima Shipyard came quickly. Due to the shipbuilding depression after
World War I and Japan’s signing of the Five-Power Treaty following the
Washington Naval Conference of 1921–1922, Ishikawajima shifted its focus of
turbine development from marine to land-based applications. To that end, the
company sent a researcher to Escher Wyss, a leading Swiss manufacturer of land-
based turbines. Toshio was selected as a researcher. He left for Switzerland in 1922.
His diligence at Escher Wyss surprised researchers from all over the world, putting
into practice the spirit instilled in him by Sataro Yamauchi. He was also living up to
his lifelong principles of “thorough diligence” and “thorough proficiency.” In
2
Matsuzawa, M. (1992). Doko Toshio no oitachi to sugao (The background and personality of
Toshio Doko) (p. 19). Yokohama: Yamateshobo Shinsha Publishers.
Revamping the Management of Ishikawajima Shibaura Turbine 203
Switzerland, Toshio spent what little leisure time he had for skiing, his only means of
relaxation.
Toshio returned to Japan in October 1923. The various insights that he brought
back from Escher Wyss helped to jump-start Ishikawajima Shipyard’s land-based
turbine business. The delivery of Japan’s first domestically produced steam turbine
by Ishikawajima Shipyard for a large power generator at Chichibu Cement in 1929
(Showa 4) reflected the value of such insights. At that time, Chichibu Cement‘s
purchasing staff was hesitant to use a domestically produced turbine, but Toshio told
them that “Ishikawajima has absolute confidence in its technology. Please do not say
that domestic products are inferior to foreign ones without having used them first.
Full domestication of production is necessary to encourage Japan’s own technolog-
ical development and for the future of Japan. I urge you to use Ishikawajima’s
turbines.3” With the delivery of the first domestically produced turbine, the nick-
name, “Doko the Turbine Man,” became widespread throughout the industry.
Revamping the Management of Ishikawajima Shibaura

Turbine
Although Ishikawajima Shipyard steadily expanded its business through the rapid
growth of its land-based turbine business, the company was hit hard by the Showa
Depression, forced to lay off 550 workers in 1931. This was an unforgettable painful
event for Toshio Doko. Although his position within the company at the time did not
enable him to stop the layoffs, he vowed that he would never allow the company to
repeat this action. After the war, as president of Ishikawajima Heavy Industries and
Toshiba Corporation, Toshio worked to rebuild the ailing companies, but maintained
his policy of “not laying off even a single employee.” It is safe to say that his belief in
securing employment as a corporate social responsibility was based on his painful
experiences during the Showa Depression.
In 1936, sometime after the Japanese economy emerged from the Showa Depres-
sion, Toshio was transferred to the newly established Ishikawajima Shibaura Tur-
bine Co. (IST) – a joint venture between Ishikawajima Shipyard and Shibaura
Seisakusho, with the two both spinning off their turbine divisions. At IST, “Doko
the Turbine Man” continued to play an active role. He recalled his time at IST:
Immediately after my transfer to the new company, I was dispatched to GE headquarters in
the United States with plant manager Uematsu and several others, and was given the
opportunity to study and observe. We had a frank exchange of opinions with the engineers
there, which proved very beneficial.
We returned to Japan in February of the following year, and five months later, I was
appointed a member of the board. I was 41 years old.
3
Horie, Y. (1999). Shinnen no hito Doko Toshio: Hasso no genten (Toshio Doko as a man of
conviction: Origin of ideas) (p. 99). Tokyo: Sanshindo Publishers.
Even after becoming the engineering division’s chief and then a board member, my work
remained the same. We all discussed and worked together on site to make the best turbines
possible. We also traveled all over Japan for assembly and repair. There was literally no time
for our seats to stay warm during this period. It was a very busy time for us engineers, as if
we were working on turbines before and after every meal.4
Toshio, who worked at IST to the end of WWII, was appointed president of the
company in April 1946, partly because top management was ousted as part of the
postwar reforms. IST had four plants in Nagano Prefecture (Matsumoto, Tatsuno,
Kiso, and Ina), in addition to its main plant in Tsurumi, Yokohama. President Doko
actively traveled back and forth among these factories, orchestrating the shift from
military to civilian production in efforts to rebuild the company. Looking back, he
recalled: “First, we made pots and pans to secure a living for our employees, and
then we continued to make round trips between Tsurumi and Matsumoto for full-
scale reconstruction. The trains we used were usually overnight trains. There were
several nights when I slept standing up in the packed, overcrowded train.5”
Sustaining Toshio as president of IST was his iron-willed determination that “not
a single employee and her or his family should go hungry.6” To secure funds for
paying wages, Toshio sometimes had to negotiate all night long with banks. Thanks
to his leadership efforts, IST was able to overcome its postwar difficulties earlier
than its parent company, Ishikawajima Heavy Industries.
Rebuilding the Management of Ishikawajima Heavy

Industries
Ishikawajima Shipyard changed its name to Ishikawajima Heavy Industries (IHI) in

June 1945, shortly before the end of the war. IHI was unable to break out of its
postwar slump, and in 1950 it posted a deficit as large as 150 million yen. This led to
calls for Toshio Doko, who had successfully restructured the subsidiary IST, to
return to the IHI parent company. Eventually, he did so in June 1950. Exactly
30 years had passed since Toshio had joined Ishikawajima Shipyard in 1920.
Upon taking office as president of IHI, Toshio told the labor union that “I will
not lay off any employees.7” Then on New Year’s Day 1951, his first after taking
office, Toshio stood at the entrance of the company and handed each employee
the first issue of the company newsletter, “Ishikawajima,” which he had person-
ally prepared. The newsletter contained the following specific goals for the
company’s reconstruction: (1) establishing a plant-by-plant profitability system;
4
Ibid., pp. 104–105.
5
Doko, T. (2012). Doko Toshio: watashi no rirekisho (Toshio Doko: My résumé) (p. 83). Tokyo:
Nihontosho Center Co., Ltd.
6
Op. cit., Matsuzawa, M. (1992), p. 109.
7
Ibid., p. 116.
Rebuilding the Management of Ishikawajima Heavy Industries 205
(2) establishing sound management; (3) planning order-taking and consolidating

product models; (4) utilizing the organization and improving administrative
efficiency; and (5) enhancing corporate culture and spirit. This managerial
approach gradually permeated IHI and the labor union began to cooperate with
corporate restructuring, softening its confrontational tone. President Doko
succeeded in restructuring IHI without layoffs.
In 1954, when Toshio was hard at work rebuilding IHI, the so-called shipbuilding
scandal broke out, when kickbacks tied to the government’s assistance for ship-
builders’ interest payment reached political circles, leading to the arrest of more than
100 people from the political, public, and private sectors. The prosecutors’ investi-
gation extended to IHI as well, and even though he was not involved, Toshio was
detained for twenty days, and recalled the incident as follows:
I was arrested as one of the presidents of shipbuilding companies and spent twenty days in
detention. I was waiting for the bus at the bus stop in front of my house as usual when a
prosecutor from the Tokyo District Public Prosecutor’s Office approached me and asked:
“Do you have a moment to go back to your house?” After a two-hour search of my house, I
was ordered to turn myself in voluntarily. The chief prosecutor of the Tokyo District Public
Prosecutors Office was Mr. Nobutaro Kawai, but I think my case was assigned to Prosecutor
Terashima.
I heard that the prosecutor in charge later told reporters that when he saw my ramshackle
house and the way I commuted by train, he said: “Oh, I had a gut feeling that this person was
different.”
But I learned a new lesson in my twenty days in jail. “Life is full of unexpected pitfalls.
You must separate the public and the private, always be neat and tidy, and live steadfastly.8”
In the end, it was confirmed that Toshio had nothing to do with the scandal, and he
was released without being indicted. The anecdote – that the prosecutor in charge
of the case was impressed by Toshio’s “integrity and honesty” when he learned
that his house in Tsurumi, Yokohama, was modest and that he commuted by bus
and train instead of using a company car – is very impressive. Toshio gleaned a
lesson from this unfortunate experience and further refined his “integrity and
honesty.”
Under the leadership of President Toshio Doko, the restructuring of IHI
progressed. In getting the company back on track, the development and introduction
of new technologies played important roles; he recalled:
Behind the scenes of such breakthroughs, Ishikawajima made continual efforts, first in its
own technological development, and second in the introduction of foreign technologies.
First, in the year 26 [Showa 26 or 1951] the company formed a technical partnership with
ETNA Japan in ironmaking machinery, and in Showa 27, it formed a partnership with U.S.
Foster Wheeler for land and marine boilers, paving the way for high-temperature, high-
pressure boilers. The company also launched a joint venture with U.S. Calling Co., and
established “Ishikawajima Calling,” introducing construction machinery technology. In
addition, the company incorporated pneu-matic machinery technology from the U.S.-
based Joy Corporation.
8
Op. cit., Doko, T. (2012), pp. 98–99.
In Showa 31, the company introduced gas turbines for aircraft in partnership with GE,
followed by marine turbines and land-based turbine auxiliaries. At this time, the company
had introduced about 80 technologies. I can’t tell you how many times I traveled back and
forth between Japan and Europe and the U.S. to sign these partnership agreements.
However, although the main purpose behind the enthusiasm and willingness in intro-
ducing these technologies to Japan was to eliminate the technological gap after the war,
technological adoption was made possible by the excellence of the Japanese technical staff.. .
. It was possible first and foremost because [the U.S. and European counterparts] had
confidence in their technical standards.9
As these words indicate, Toshio was never satisfied with simply importing a new
technology, but aimed to connect it with his own company’s technological devel-
opment to produce technological innovation. He was aiming to recreate the experi-
ence of his youth prior to the war, when he learned from the technology from Escher
Wyss, and eventually achieved the domestic production of a large turbine. With
technological innovation serving as a driver, IHI set upon a growth path.
This growth was symbolized by the company’s entry into the Brazilian market. In
January 1958, President Doko signed an agreement with the Brazilian government,
and by the end of the same year, Ishikawajima Brazil Shipyard (commonly known as
“Ishi-Bras”) was born. Although executives at IHI’s main bank Dai-Ichi Bank were
opposed to the company’s Brazilian foray, Toshio established Ishi-Bras because he
believed that expansion overseas was the only way for Japan’s shipbuilding industry
to continue growing. He made painstaking preparations for entering the Brazilian
market. International travel was far less convenient than today, but Doko made more
than a dozen trips to Brazil. In 1960, the Brazilian government awarded him the
Order of the Southern Cross as a token of appreciation for his decision to enter the
country’s market not long after the war’s end – the first time that a Japanese national
received this honor.
In December 1960, IHI and Harima Shipbuilding & Engineering merged to form
the new company Ishikawajima-Harima Heavy Industries (new IHI). It was
a complementary merger between IHI which had a strong land-based division and
a weak shipbuilding division, and Harima Shipbuilding & Engineering which had a
strong shipbuilding division and a weak land-based division. It became a great
success. Toshio Doko, President of IHI, attending the merger’s press conference
together with Harima President Shuzo Mutsuoka, said in a plain-spoken manner:
“This is a merger of land and sea. It is not a merger in which one and one are
combined to make two, but nuclear fusion in which one plus one becomes three or
four.10” Ishikawajima-Harima Heavy Industries became a familiar name to the
public through the abbreviation IHI, with the company growing steadily. Upon the
establishment of IHI, Toshio was appointed president of the company, with
Mutsuoka serving as chairman.
9
Ibid., p. 97.
10
Op. cit., Matsuzawa, M. (1992), p. 147.
Rebuilding Toshiba’s Management 207
Toshio Doko at the time of the merger of Ishikawajima Heavy Industries and Harima Shipbuilding
& Engineering (1960) (Provided by Asahi Shimbun/Jiji Press Photo)
Rebuilding Toshiba’s Management
Toshio Doko became chairman of the merged IHI in 1964. The following year, the
Japanese economy experienced the so-called 1965 Recession, dubbed the “biggest
postwar recession.” During this recession, Tokyo Shibaura Electric Company
(Toshiba), one of Japan’s leading general electronics manufacturers, also struggled
and fell into crisis. Toshiba was created in 1939 when Shibaura Seisakusho, which
along with Ishikawajima Shipyard was the parent company of Ishikawajima
Shibaura Turbine, merged with Tokyo Denki. Taizo Ishizaka, chairman of Toshiba,
attempted to rebuild the company by appointing Toshio Doko as president in May
1965. Ishizaka had been called the “prime minister of the business world” since he
became the second chairman of Japan Federation of Economic Organizations
(Keidanren) in 1956, and Toshio Doko had long held him in deep respect. Also,
after having served as president of Ishikawajima Shibaura Turbine, Toshio was no
stranger to Toshiba’s crisis.
When Toshio Doko became president of Toshiba, he first introduced himself to
the labor union. After seeing this respectful attitude from Toshio, the union did not
feel the same distrust as it did toward previous presidents. His approach gradually
gained acceptance among union members as he proclaimed, “Due to these circum-
stances, I cannot pay you as much as other companies at this time. But if you work
hard and make a profit, I will make sure that compensations are competitive with
others. Even when we earn a profit, it doesn’t mean it will go straight to my own
pocket, so I will distribute it fairly11”.
11
Op. cit., Horie, Y. (1999), p. 197.
President Toshio Doko’s “Toshiba Revolution” focused above all on changing

employees’ attitudes. He repeatedly said, “General employees should think three
times harder than before, executives work ten times harder, and I myself work even
harder than that,12” and he led by example. He continued to commute to work early
in the morning by train, including on Sundays (Japan then had a 6-day work week),
and remodeled the president’s office that used to have its own bathroom, toilet, and
kitchen, into a simple one. He also substantially delegated authority to the heads of
business divisions13 and further spearheaded sales activities himself, calling them
“President’s Sales.”
In 1965, with the recession deepening, Toshio, as Toshiba President, formulated a
medium-term management plan that covered a two-year period from fiscal 1966 to
fundamentally strengthen the company’s structure. Its five priority items were:
(1) improving asset efficiency; (2) establishing production systems; (3) improving
business management systems; (4) strengthening the development of technology;
and (5) enhancing sales systems.
Of these, Toshiba focused on strengthening its technological capabilities with
new products and technologies and fields that would boost sales and profits. It is
noteworthy here that “For the promotion of R&D, and moreover, for the company’s
continuous development, even during periods of poor performance due to the
economic downturn, 3–4% of sales were set aside for R&D, in anticipation of a
dramatic advancement in its capacity to develop technologies. In order to strengthen
the capacity to develop technologies across the company, they needed to enhance the
management of technology comprehensively. For this purpose, in July of Showa
41 [1966], a newly established engineering headquarters directly reported to the
president.14” Thus, the essence of Toshio’s corporate restructuring measures fea-
tured radical measures that would enable long-term development rather than short-
term, symptomatic treatments.
Under Toshio Doko’s leadership, Toshiba revived phoenix-like by successfully
rebuilding Ishikawajima Shibaura Turbine, Ishikawajima Heavy Industries, and
12
Op. cit., Doko, T. (2012), p. 118.
13
The transfer of authority to the business manager did not remove the president’s responsibility.
See Sakakibara, H. (1976). Hyoden Doko Toshio (A critical biography of Toshio Doko). Tokyo:
Kokusai Shogyo Publishing Corp.: “Even if the president and the board of directors transfer all
authority to the business manager, the final responsibility rests with the president. Therefore, Doko
established the managing directors’ meeting, the business operation managers’ meeting, the
monthly reporting meeting of business managers, and so on, to provide a forum for discussion
between the business operation managers and the other middle-level managers. The proposals from
the business operation managers to the middle-level managers were called challenge by Doko and
the opinions of the middle-level managers were called response. The expressions challenge and
response were borrowed from a work by Toynbee, much studied by Doko when he was the
chairperson of IHI” (pp. 98–99). Note that IHI stands for Ishikawajima-Harima Heavy Industries,
and that Toynbee is the British historian Arnold J. Toynbee.
14
For the discussion above, see Tokyo Shibaura Electric Co., Ltd. (Eds.) (1977). Toshiba
hyakunen-shi (One hundred year’s history of Toshiba) (p. 119). Tokyo: Tokyo Shibaura Electric
Co., Ltd.
From Keidanren Chairman to “Mr. Administrative Reform” 209
Toshiba. Over time, Toshio became known as “the fine physician of the business
world” because he adhered to a management philosophy that consisted of the
following three elements:
1. Rationalizing thoroughly
2. Presenting a long-term vision
3. Exercising vitality
From Keidanren Chairman to “Mr. Administrative Reform”
Toshio Doko became the chairman of Toshiba in 1972. Two years later, in May
1974, he was elected the fourth chairman of Keidanren. The “fine physician of the
business world” finally transformed himself from being a fine doctor restoring the
health of individual companies to one who restored the entire business community of
Japan.
When Toshio became chairman of Keidanren, Japan was experiencing severe
price hikes brought on by the first oil crisis. It was also the time when the Lockheed
bribery scandals came to light and the collusion between the political and business
worlds drew sharp criticism from the public. Looking back, he noted:
The recession triggered by the oil shock was somehow overcome through the efforts of each
company, but other problems continued to crop up one after another, sometimes
simultaneously.
First, in August of year 49 [Showa 49; 1974] commotion followed my statement that
“Keidanren does not act as a collection agent for political donations. In the first place,
“donations should be made on an individual level.” Some people said, “Doko is
blackmailing the Liberal Democratic Party with the money of the business community
behind him,” or “He is clueless about politics.” Without a thought for personal gain, I
presented what I considered a sound argument only because I wanted the conservative party
[LDP] to stay on the straight path. There was a lot of wrangling, but the issue was eventually
settled by the reorganization of contact points.15
The appointment of the “clean and fair” Doko as chairman of Keidanren did much to
restore public trust in that business organization.
After serving three terms as president of Keidanren over six years, Toshio Doko
went on to serve as chairman of the Ad Hoc Administrative Research Council
(Rincho) starting in March 1981 and as chairman of the Ad Hoc Administrative
Reform Promotion Council (Gyokakushin) starting in July 1983. Rincho is an
advisory body directly under the Prime Minister. Rincho vigorously issued numer-
ous recommendations on issues such as reducing the public’s burden, simplifying
administrative procedures, reviewing the nation’s institutions, systems, and policies,
and methods of pressing ahead with future administrative reform. Rincho had been
established earlier, in 1961 (the First Ad Hoc Administrative Research Council), and
was technically the Second Ad Hoc Administrative Research Council (the Second
15
Op. cit., Doko, T. (2012), pp. 137–138.
Rincho) over which Toshio assumed chairmanship. The Gyokakushin, on the other
hand, was a temporary body established in the Prime Minister’s Office to monitor
implementation of Rincho’s recommendations.
Despite his advanced age, Toshio, who came to be known as a “selfless man” and
a “man of conviction” through his rebuilding of individual companies and reform of
Keidanren, was uniquely qualified to serve as chairman of Rincho and Gyokakushin.
He devoted his later years to administrative reform, and the Japanese public came to
refer to him as “Mr. Gyokaku (Mr. Administrative Reform)” with awe. A well-
known episode occurred one week before the release of the Third Report by the
Second Rincho. On July 23, 1982, NHK Special (a special program by the NHK
Japan Broadcasting Corporation) program entitled “An 85-year-old’s perseverance:
The face of the administrative reform, Toshio Doko” was broadcast on television and
caused a huge sensation.
The dinner menu of Mr. and Mrs. Doko shown on TV consisted only of mezashi
(dried fish), some greens, miso soup, and brown rice. The frugal lifestyle of a top
figure in the business world took many people by surprise and reminded them of the
importance of frugality. At the same time, they were also deeply moved by the
consistency and seriousness of his stance toward administrative reform aimed at
eliminating wasteful spending. This broadcast instantly popularized the image of
“Mezashi no Doko-san” (Mr. Dried Fish Doko), was proof that even in the last years
of his life, Toshio remained committed to “thorough diligence” and “leading by
example.”
A Sense of Crisis Harbored by Doko
Toshio Doko’s strong desire for administrative reform was triggered by the article
“Suicide by Japan,” co-authored by “Group 1984,” and appearing in the February
1975 issue of the Bungeishunju magazine. The article warned that the decline of
ancient Greece and the Roman Empire bore a striking resemblance to the situation in
Japan. Doko summarized the contents as follows:
The situation is so similar that the story of Rome [the Roman Empire] and [ancient] Greece
could be taken word for word as the story of Japan without any contradiction, and if the
country name Japan replaced Rome and Greece, the story would still be the same.
The research group ([“Group 1984” that wrote the article] found that the results exceeded
their expectations, saying, “The more we entered the world of the fall of Greece and Rome
through these fragments of historical documents, the more we grew acutely aware of the
magnitude of the crisis of Japan’s political, economic, social, and cultural downfall.”
Then the authors went on to warn that “. . .should Japan decline in the future, the
historians of the future may compare Japan to Rome and may call it a ‘second Roman
Empire’.” Finally, they quoted Cyprian [Bishop of Carthage] as they warned readers:
“Herein you must in the first place learn that the world is now reaching its old age, that it
stands no longer in its pristine strength, no longer keeps its indwelling vigor and force. This
though we ourselves should speak it not. . . still the world itself declares it, and attests its own
ruin in the tottering estate of things.”
A Sense of Crisis Harbored by Doko 211
(“The Treatises of S. Caecilius Cyprian, Bishop of Carthage, and Martyr” Translated by

Members of the English Church. Oxford: James Parker & Co. and Rivingtons. 1876,
pp. 200–201).16
Toshio felt that this article “Suicide by Japan,” “should be read by as many people as
possible, so with the publisher’s approval I made tens of thousands of copies and
distributed to people in the business community.17” He indeed shared with “Group
1984” a strong sense of crisis about the future of Japan.
Toshio Doko passed away in August 1988, in the midst of Japan’s economic
bubble. Unfortunately, the sense of crisis he held in his later years turned into reality.
Japan’s society and economy made a darker turn after reaching its peak in 1989, the
year the Japanese calendar changed the name of the era from Showa to Heisei. The
1990s were dubbed the “Lost Decade,” and Japan’s economic slump became a
prolonged affair thereafter. For Japan today, still struggling to emerge from the
crisis, Toshio Doko’s ideas and his way of life can still be a “guiding star.18”
parts of it.
16
Ibid., pp. 14–15.
17
Ibid., p. 15.
18
For this discussion, see op. cit., Kikkawa, T. (2017b).
Discussion Point 3: How Did Japan’s
Economy Continuously Grow Over a Long
Period? Catch-Up and Domestic Demand
Abstract This section disagrees somewhat with traditional, export-driven “Catch-

Up Industrialization Theory” to explain the long, almost uninterrupted growth of
Japan’s economy until the 1980s. Increasing domestic demand consumption—as a
result of ongoing incremental innovation, increased organizational capacity, and
private-sector capital investment—is argued to be the main driving force.
Examining Akira Suehiro’s “Catch-Up Industrialization

Theory”
The long period of the Japanese economy’s relatively high growth from World War I
to the 1980s can be seen as the result of catch-up industrialization aimed at drawing
level with, and then surpassing, Western countries. In Japan’s case, the road was
long and arduous because of the defeat in World War II.
Akira Suehiro’s “Catch-up Style Industrialization Theory” (Nagoya University
Press, 2000) systemically analyzes catch-up industrialization. Although the book
does not directly focus on Japan, by applying his arguments it is possible to
understand the characteristics of Japan’s economic growth.
Suehiro characterizes “catch-up industrialization” as “export-driven industriali-
zation.1” Although there are different types of “catch-up industrialization,” such as
NICs (Newly Industrializing Countries) and NAICs (Newly Agro-Industrializing
Countries), they all have one thing in common: export-driven industrialization.2
When Suehiro discussed the production, export, and overseas production of televi-
sions in Asia, the sales channels envisioned there were not intended to satisfy
domestic demand in the respective countries of origin (including Japan), but were
geared toward the overseas market, especially the United States.3
1
Suehiro, A. (2000). Kyacchiappu-gata kogyoka-ron: Ajia keizai no kiseki to tenbo (Catch-up style
industrialization theory: The trajectory and prospects of Asian economies) (p. 94). Nagoya: Nagoya
University Press.
2
Ibid., pp. 137–143.
3
Ibid., pp. 52–55.
© Kreab K.K. 2023 213

214 Discussion Point 3: How Did Japan’s Economy Continuously Grow Over a. . .
The problem here is that Suehiro “stands on the understanding that Japan was the
most typical example of ‘catch-up industrialization’.4” However, as Suehiro himself
admits to some extent,5 Japan’s economic growth after World War II was driven by
domestic demand, not by exports. It is somewhat unreasonable to suggest that
postwar Japan achieved domestic demand-driven economic growth while also
claiming that Japan was the most typical country of export-driven “catch-up indus-
trialization”. However, it is well known that the national consensus to “catch up and
overtake” the Western countries was an important driving force in Japan’s postwar
economic growth. Thus the “catch-up industrialization theory” cannot simply be
dismissed as an argument irrelevant to postwar Japan.
There are two ways to resolve this dilemma. One is to take the position that Japan
was the most typical country of export-driven “catch-up industrialization” in the
prewar period but not in the postwar period. The other is to modify the character-
ization of “catch-up industrialization” to incorporate the role of domestic demand in
the industrialization process.
The former is not an altogether appropriate position. While true that Japan’s
economy was generally more dependent on exports in the prewar period than in the
postwar period, there remains undeniable inaccuracy in the view that Japan’s
economic development was export-driven in the prewar period when exports and
income from abroad as a percentage of nominal gross domestic expenditure
accounted for 5% (1885), 6% (1890), 10% (1895), 11% (1900), 13% (1905), 15%
(1910), 20% (1915), 19% (1920), 20% (1925), 17% (1930), 23% (1935), and 20%
(1940).6 In other words, the view that Japan was the most typical example of the
export-driven “catch-up industrialization” in the prewar period is not fully credible;
the latter approach, taking into account the role of domestic demand as well as
exports, is more credible.
In fact, Suehiro’s “Catch-Up Industrialization” in several places also mentions the
role of domestic demand in the economic development of Asian countries. For
example, Suehiro introduces without any critical commentary Hitoshi Hirakawa’s
theory that “Asian NIEs” (Newly Industrializing Economies) are a developmental
stage of NICs that “achieved growth not only through exports but also by incorpo-
rating domestic demand.7” Based on Thailand’s experience, Suehiro states that “the
expansion of newly emerging agricultural products and the growth of agro-industry,
through higher incomes for rural and regional merchants and upper class farmers,
provided an expanding domestic market for import-substituting industries.8” In his
final chapter, Suehiro predicts that “catch-up industrialization” in Asian countries
4
Ibid., p. 13.
5
Suehiro notes: “For Japan, the ratio of exports against its nominal GDP was 9% in 1960, 12% in
1980, and 10% in 1999. Therefore, it is no longer accurate to refer to Japan an export-based
economy” (op. cit., Suehiro, A. (2000), p. 306).
6
Op.cit. Ando, Y. (Ed.) (1975), p. 7.
7
Op. cit., Suehiro, A. (2000), p. 19.
8
Ibid., pp. 141–142.
Examining the World Bank’s “East Asian Miracle” 215
will continue, citing the persistence of the “growth ideology” as one argument:
“People’s inclination toward ‘affluence’ will only increase, never decrease.9”
Suehiro’s standpoint is that Asian countries that followed the path of “catch-up
industrialization” already established a certain degree of orientation toward “afflu-
ence.” Thus, Suehiro’s “catch-up industrialization theory” seems to leave plenty of
room for the role of domestic demand.
Examining the World Bank’s “East Asian Miracle”
The World Bank’s “The East Asian Miracle10” published in 1993 discusses eight
High-Performing Asian Economies (HPAEs)—Japan, Korea, Taiwan, Hong Kong,
Singapore, Thailand, Malaysia, and Indonesia—discussing the relationship between
high economic growth and public policies in these countries.11 The paper also argues
that each of these countries’ governments introduced “export standards,” encourag-
ing competition among private-sector companies to meet such standards, an argu-
ment similar to Akira Suehiro’s “Catch-up Industrialization theory.”
Does the World Bank’s view in “The East Asian Miracle,” that export standards
have been adopted in HPAEs, including Japan, hold true? As far as Japan is
concerned, the answer to this question must be probably not.12
Table 1 shows the trend of export dependence in the six East Asian countries for
every five-year period starting in 1975. This table shows that Japan’s dependence on
exports was considerably lower than that of Singapore, Malaysia, Thailand, Korea,
and Indonesia.
Japan’s dependence on exports stayed below 10% during its period of high
economic growth. Specifically, the figures were 9.6% in 1960, 9.6% in 1965, and
9.8% in 1970.13 Domestic demand, such as personal consumption and private-sector
capital investment, drove Japan’s rapid growth, not exports.
9
Ibid., pp. 308–309.
10
The World Bank (1993). The East Asian miracle. New York: Oxford University Press.
11
See The Study Society on the Question of the Development of Overseas Economic Cooperation
Fund (trans.) (1994). Higashi-ajia no kiseki: Keizai seicho to seifu no yakuwari (The miracle of
East Asia: Economic growth and the role of government). Tokyo: Toyo Keizai Inc.
12
For discussion of the difference between the World Bank view in The East Asian Miracle and the
reality in Japan, see Kikkawa, T. (1998b). Keizai kaihatsu seisaku to kigyo: Sengo-Nihon no keiken
(Economic development policy and companies: Japan’s postwar experience). In the Institute of
Social Science, The University of Tokyo (Eds.), Nijuseiki shisutemu 4 kaihatsushugi (twentieth-
century system 4: Developmentalism). Tokyo: University of Tokyo Press.
13
The ratio of the value of export (f.o.b. value) against the gross national product. Based on
Statistics Bureau of Japan, Ministry of Internal Affairs and Communications (Eds.) (1985). Kokusai
tokei yoran senkyuhyakuhachijugonen-ban (Handbook on international statistics (1985 edition));
and Statistics Bureau of Japan, Ministry of Internal Affairs and Communications (Eds.) (1994).
Sekai no tokei (senkyuhyakukyujuyonen) (World Statistics (1994)).
Table 1 “Changes in Export Country 1975 1980 1985 1990

Dependence of Six East Asian
Japan 11.2 12.5 13.0 9.7
Countries” (1975–1990)
(Unit: %) South Korea 24.4 28.6 33.7 26.8
Singapore 95.6 177.8 124.4 148.7
Thailand 15.1 19.8 19.4 29.1
Malaysia 42.7 56.3 52.8 72.6
Indonesia 24.4* 31.6* 22.2 25.3
Note: Ratio of exports (Free On Board price) to gross national
product (GNP). However, * indicates the ratio based on Cost,
Insurance, and Freight (CIF) price
Source: “International Statistical Handbook (1985 Edition),” Sta-
tistics Bureau, Management and Coordination Agency of Japan
[predecessor of the Ministry of Internal Affairs and Communica-
tions], “Global Statistics” (1994 Edition), Ibid
In the 1980s, Japan’s trade surplus grew substantially. This was not the result of
industrial policies aimed at promoting exports as the World Bank’s “The East Asian
Miracle” suggests. Rather, it was the result of the growing organizational capacity of
Japanese firms, forged by stiff competition in the domestic market.
Long-Term Growth as a Result of Incremental Innovations
The second of the three questions presented in this book’s Introduction concerning
Japanese business is: “How was it possible for the Japanese economy, once on a
growth path, to achieve high growth over a long period of time, a feat rarely seen in
world history?” In closing Part II, which focuses on the period from the end of the
Meiji era to the 1980s, I would like to answer this question from the perspective of
innovation. That is: “Incremental innovation resulted in a prolonged period of
relatively high growth driven by domestic demand.”
A necessary condition that enabled the long period of the Japanese economy’s
relatively high growth was the continuous expansion of Japan’s domestic market.
The transition to a mass consumer society began with World War I and temporarily
stalled during World War II, but progressed more rapidly after the war. The shift to a
mass consumer society also proceeded in Europe and the United States, but in Japan,
the consumer revolution progressed to a greater and deeper extent not only because
the disposable income of the Japanese people increased but also because their
lifestyles became Westernized at the same time. In addition, active capital invest-
ment in the private sector accelerated the expansion of domestic demand in the 1930s
as well as during the period of rapid postwar growth. This increase in private-sector
capital investment was arguably the most important factor in Japan’s higher eco-
nomic growth, surpassing that of Western industrialized nations. Thus, from the
1910s through the 1980s, the Japanese economy enjoyed relatively high growth
Long-Term Growth as a Result of Incremental Innovations 217
driven by domestic demand, unlike other East Asian countries and regions whose
growth was dependent on exports.
If the necessary condition for Japan’s relatively high growth was the expansion of
domestic demand, the sufficient condition was the “increased organizational capa-
bility of Japanese companies” led by innovative entrepreneurial activities. To link
the expansion of domestic demand to economic growth, it was necessary to com-
prehensively enhance fundamental corporate activities, to “create, manufacture, and
sell.” To do so, the development, manufacturing, and sales divisions of a company
needed to share information and work closely with each other in implementing a
series of “kaizen” (improvements). Incremental innovation, symbolized by the word
“kaizen,” was a sufficient condition for the Japanese economy to achieve relatively
high growth over a long period of time.
Of course, the period from the 1910s to the 1980s also saw breakthrough
innovations such as the invention of Ajinomoto by Kikunae Ikeda and the automatic
loom by Sakichi and Kiichiro Toyoda. However, Ajinomoto Co.’s development
thereafter as a comprehensive food manufacturer, led by Saburosuke Suzuki II who
succeeded in commercializing the unique breakthrough innovation, can be attributed
to a series of incremental innovations. Additionally, what decisively increased the
international competitiveness of Toyota Motor Corporation, effectively founded by
Kiichiro Toyoda, was the establishment and evolution of the “Toyota Production
System.” Toyota System became a symbol of incremental innovation, closely
aligned with the word “kaizen” (improvement). In general, during this period,
breakthrough innovation was a partial phenomenon, and incremental innovation
was dominant.
Many cases of incremental innovation start with a proactive response to customer
needs. This focus on customers was common to all entrepreneurs discussed in Part II,
from Ichizo Kobayashi and Yasuzaemon Matsunaga, who pioneered urbanization
and electrification, to Konosuke Matsushita, who initiated the “consumer revolu-
tion.” This focus on customers helped cultivate deeper domestic demand.
At the same time, the entrepreneurs discussed in Part II also actively and boldly
invested in new businesses whenever they saw opportunities. This stance was
evident in the case of Shitagau Noguchi, Yoshisuke Aikawa, and Sazo Idemitsu,
who, despite the enormous risks involved, forged into the continent before World
War II. Yataro Nishiyama was another driving force behind the rapid economic
growth of the postwar period, pioneering large-scale capital investment.
However, the series of active and bold investments by innovative entrepreneurs
that led to the long-term growth of the Japanese economy eventually began to wane.
The sense of crisis harbored by Toshio Doko in the late 1980s would turn into a
reality during the period covered in Part III.
parts of it.
Part III
The Era of Struggle: Japan Caught
Between Two Types of Innovation
Overview 4: Japan Since the 1990s
Abstract This section surveys the main factors underlying Japan’s economic stag-
nation over the past thirty years: dysfunctional management beset by “investment
restraint”; local bank panics in 1997–1998; the global Great Recession in 2008; the
massive earthquake and tsunami in 2011; and Japan’s demographic decline. Four
successful entrepreneurs who were nevertheless successful during this period—
Kazuo Inamori, Toshifumi Suzuki, Tadashi Yanai and Masayoshi Son—are each
analyzed here for their innovative contributions.
The Japanese Economy Takes a Darker Turn
In Part III, we will look at three cases covering a total of four innovative entrepre-
neurs who have been active during the period from the 1990s to the present day.
During this period, Japan’s economy and its companies were forced into a prolonged
slump, caught between breakthrough innovations in information and communica-
tions originating in developed countries and by “disruptive innovation” coming from
latecomer nations that have rapidly caught up.
The 1990s is often referred to as a “Lost Decade” for the Japanese economy and
Japanese companies. As seen so far, for more than three-quarters of a century since
the 1910s, except for a brief period immediately after defeat in World War II, Japan’s
economy enjoyed relatively high growth among capitalist countries. In the 1990s,
however, Japan’s economy swiftly fell from “honor student” status to “failed
student” in terms of economic growth among the developed countries participating
in summit meetings.
In 1997–1998 (Heisei 9–10), the “Heisei Financial Panic” surfaced in the form of
bankruptcies of Hokkaido Takushoku Bank, Yamaichi Securities, Long-Term Credit
Bank of Japan, and Nippon Credit Bank. This was considered comparable to the
“Showa financial crisis” of seventy years earlier in 1927 (Showa 2). In addition, at
the end of the 1990s, Japan experienced its first full-scale deflation (a sustained fall
in the general level of prices) in about half a century since the deflation triggered by
the Dodge Line in 1949, a measure adopted after the country’s defeat in WWII.
© Kreab K.K. 2023 221

222 Overview 4: Japan Since the 1990s
The so-called Lehman Shock exacerbated Japan’s economic downturn. In

September 2008, Lehman Brothers, a major investment bank in the United States,
went bankrupt, sweeping the entire world into a recession. This simultaneous global
recession dealt a serious blow to Japan’s economy as well.
Apart from the global recession triggered by the Lehman Shock, Japan experi-
enced its own massive tragedy and dilemma: the Great East Japan Earthquake and
the nuclear accident at the Fukushima Daiichi Nuclear Power Plant run by Tokyo
Electric Power Company (TEPCO).
At 2:46 p.m. on March 11, 2011, the massive Great Tohoku Earthquake hit the
Tohoku region, reaching 9.0 on the Richter scale. The earthquake and subsequent
tsunami brought about the largest natural disaster in Japan’s postwar era, leaving
nearly 20,000 people dead or missing.
The Great East Japan Earthquake was also significant in that it was accompanied
by the Fukushima Daiichi Nuclear Power Plant accident, rated Level 7 (“serious
accident”) on the International Nuclear Event Scale (INES) for evaluation of acci-
dents and malfunctions of nuclear facilities. The level was on par with the 1986
Chernobyl Nuclear Power Plant accident in the former Soviet Union, considered the
worst in history; the aftermath still prevents many residents from returning to the
area to date.
Underlying the downturn of the Japanese economy and companies since the
1990s was an unprecedented and serious situation: the decline in the Japanese
population after 2005. In December 2005, the Ministry of Health, Labor and Welfare
(MHLW) released its “Vital Statistics” (annual estimates) for the year. According to
the report, the number of births was 1,067,000, down 44,000 from the previous year,
and the number of deaths 1,077,000, up 48,000 from the previous year, resulting in a
“natural decrease” of 10,000 persons. For the first time on record since 1899 when
such surveys began, the number of deaths exceeded the number of births.
A society with a declining population has advantages and disadvantages. Advan-
tages include reduced consumption of energy, water, and other resources; reduced
food consumption; reduced emission of carbon dioxide (CO2) that contributes to
global warming; and increased availability of land for purchase. A significant
disadvantage is that economic growth slows as the size of the market contracts,
and opportunities and appetite for investment decrease. Other serious problems
include the reduction in the number of social and cultural bearers as well as decline
in the country’s global status. In sum, we conclude that a society with a declining
population has more disadvantages than advantages.
Japanese-Style Management Turns Dysfunctional
In the mid-1980s, the country’s corporate system was viewed favorably by the
international community, as it reflected the strong performance of the Japanese
economy. However, as Japan’s economic bubble burst and the so-called Lost
Decade began, criticism of the Japanese corporate system gained momentum.
Investment Restraint Mechanism 223
The critiques were directed mainly at the Japanese management system. After the
economic bubble burst in the early 1990s, Japanese-style management became less
functional. It began losing esteem as the large, manager-centric companies, previ-
ously the main practitioners of Japanese-style management until the 1980s, lost
confidence and came to prioritize shareholder- management systems.
To be clear, there is no problem in the large, manager-centric companies’ taking a
shareholder-oriented approach in post-1990s Japan. The rapid expansion of Japan’s
capital markets and financial globalization that began in the late 1980s required
companies to raise funds from capital markets, and required companies to adopt a
shareholder-oriented approach. The problem is that many manager-centric large
corporations came to view shareholder-orientation as synonymous with pursuit of
short-term profits, forgetting the long-term perspective that had been the strength of
Japanese-style management.
Investment Restraint Mechanism
Often, companies equate a focus on shareholders with pursuit of short-term profits.

In fact, from the 1960s to the 1980s, U.S. companies did likewise, failing to make
necessary investments. This resulted in a “Japan-U.S. reversal” in some areas,
causing U.S. companies to trail behind their Japanese counterparts. In the 1990s,
however, U.S. companies began to invest aggressively with long-term vision while
maintaining a shareholder-oriented stance, thereby moving ahead of their Japanese
counterparts.
After the economic bubble burst, large manager-centric Japanese corporations
actively pursued a shift to American-style management, emphasizing return on
assets (ROA) and return on equity (ROE). In the United States, enjoying the “New
Economy” in the 1990s, companies adopted a strategy of increasing ROA and ROE,
investing aggressively to increase their A (assets) and E (equities), while at the same
time increasing R (return) at a faster rate than A and E. By contrast, in Japan, many
such companies tried to increase ROA and ROE by restraining investment and by
reducing A and E.
Strictly speaking, the attempt to pare down inflated assets in Japan after the
economic bubble burst was not in itself mistaken. If a company invests in assets to
strengthen its competitiveness after such downsizing, it can revive its business. The
problem was that many Japanese companies, despite having strengthened their
fundamentals by downsizing their assets, did not make proper investments aligned
with their growth strategies.
Although U.S. and Japanese companies generally shared the common goal of
increasing ROA and ROE, companies took contrasting approaches to making
investments. After the collapse of the bubble, what might be called an investment
suppression mechanism became pervasive in Japan. In manager-centric Japanese
firms where managers had lost confidence, companies did not undertake their
essential function to make sufficient investments, and full-time employees actively
224 Overview 4: Japan Since the 1990s
cooperated with that strategy. The advantages of the Japanese management system,
which featured long-term vision and concomitant necessary investments,
faded away.
Part III will focus on four entrepreneurs: Kazuo Inamori, Toshifumi Suzuki,
Tadashi Yanai and Masayoshi Son. Despite the general managerial malaise, these
managers remained exceptionally innovative even in the difficult times of the 1990s
and beyond.
parts of it.
Case 18 Kazuo Inamori: Managerial
Renewal by a Venture Manager
Abstract This chapter introduces Kazuo Inamori, founder of Kyoto Ceramic

(Kyocera) and KDDI. Inamori was an entrepreneur who upheld his philosophy on
management.
Inamori Begins Kyoto Ceramic (Kyocera) as a Venture

Manager
One might object to inclusion of Kazuo Inamori in Part III covering the post-1990s
period because Inamori founded Kyoto Ceramics in 1959 (Showa 34), and his
success coincided with the rapid growth of the Japanese economy. However, there
is a reason for situating Inamori in Part III rather than Part II. His entrepreneurial
activities were characterized by bold risk-taking when he began as a venture
manager. His future-oriented market cultivation and technological development
were based on the premise of growth through learning rather than preservation of
the status quo, and he continued to evolve through simple yet unique measures for
organizational revitalization. Japanese business leaders had lost these elements
during the period of stagnation, but all were crucial to revive Japan’s economy. As
if to prove the point, Kazuo Inamori continued to play an active role in the post-
1990s period by putting Daini-Denden Inc. (DDI) back on track and rebuilding the
bankrupt Japan Airlines.
Kazuo Inamori was born in 1932 (Showa 7) in Yakushi-cho, Kagoshima City. In
the screening exams for junior high school, university, and employment, he was
rejected by all of his first choices. He attended Kagoshima Junior High School
(equivalent of high school in postwar Japan) and Kagoshima University (School of
Engineering) before joining the Kyoto-based Shofu Industries. The company
manufactured and sold insulators used in power grids, but was struggling under
competitive pressure from Nihon Gaishi (NGK Insulators) and others, and was also
mired in serious labor-management conflict.
Kazuo Inamori’s activities at Shofu Industries were described by Tadao Kagono
as follows:
© Kreab K.K. 2023 225

226 Case 18 Kazuo Inamori: Managerial Renewal by a Venture Manager
Inamori’s first assignment at Shofu Industries was the U-Shaped Kelcima, a special porce-
lain part for cathode ray tubes, commissioned by Matsushita Electronics. . . .
As a researcher, he worked on the development of manufacturing technology for the
U-Shaped Kelcima. The development process was not easy. It was a difficult component to
manufacture, and at the time only Philips had the capability to produce it. . . .
The company succeeded in developing a new ceramic material called Forsterite, and
mass production of the U-Shaped Kelcima was underway. At the time, the television boom
had just begun, and the U-Shaped Kelcima, a component of cathode-ray tubes, was expected
to be in great demand. The company decided to move to mass production and Inamori was
transferred to the Special Magnetic Section where he began developing production methods.
In the Special Magnetic Section, he pressed ahead with the determination to “rebuild this
company with new ceramics.” Refusing to accept transfers from the insulator division,
which had surplus personnel, he personally handpicked a group of motivated employees.
Despite the hardships, he succeeded in mass-producing the product.
As chief of the Special Magnetic Section, he worked on the development of forsterite-
based ceramic vacuum tubes requested by Hitachi but was unable to produce anything
satisfactory. Around that time, he had a conflict with the technical manager who had come
from outside the company. Inamori decided to leave when the manager said, “With your
technical skills and background, this is the farthest you can go. We will take care of the rest.
Please excuse yourself from this project1”.
In 1957, when the mass production of the U-Shaped Kelcima began, Shofu Indus-
tries went on strike for two months. Inamori and staff at the Special Magnetic
Section did not participate in the strike, and continued production of U-Shaped
Kelcima to meet the demands of customers. The union’s obstruction made it difficult
to ship finished products from the factory, but a cooperative female employee
managed to smuggle them out. The female employee later became Inamori’s wife.
Despite all this hard work, the new head of the technical department insulted
Kazuo Inamori’s technical skills and background. It was only natural that Inamori
decided to leave the company.
After leaving Shofu Industries, Kazuo Inamori founded Kyoto Ceramic Co in
1959. To launch a venture company, securing managerial resources and customers is
essential. According to Minoru Shimamoto, in the case of Kyoto Ceramic, a “chain
mobilization of managerial resources” was at work.2
Managerial resources consist of money, human and physical resources, but in
terms of human resources, it was important that many of Inamori’s capable sub-
ordinates from Shofu Industries moved to Kyoto Ceramic. It was also important that
Masaji Aoyama, a Shofu Industries supervisor deeply impressed by Inamori, joined
him at the new company as well. Aoyama brought his college classmates, who then
were executives at Miyaki Electric Manufacturing, to meet Inamori. As a result of
strong persuasion by Aoyama and Inamori, Miyaki Electric executives, including
1
Kagono, T. (1998). Bencha keieisha Inamori Kazuo (kyosera) (Venture manager Kazuo Inamori,
Kyocera Corporation). In Op. cit., H. Itami, T. Kagono, M. Miyamoto, & S. Yonekura, (Eds.),
(Case book management behavior of Japanese companies 4: Images of businessmen and the spirit
of the times) (p. 360).
2
Shimamoto, M. (2005). Kyosera keiei shigen no rensateki doin (Kyocera Corporation: The chain
mobilization of management resources). In S. Yonekura (Eds.), Kesubukku Nihon no sutatoappu
kigyo (Case book on Japanese startups) (pp. 108–115). Tokyo: Yuhikaku Publishing Co., Ltd.
Future-Oriented Market Cultivation and Technological Development 227
company president Otoya Miyaki, agreed to provide Kyoto Ceramic with start-up
capital. In addition, Kyoto Ceramic leased the company building and factory from
Miyaki Electric. In this way, Miyaki Electric played the role of an angel investor, not
only in terms of money but also in terms of physical resources, activating the
mechanism of “chain mobilization of managerial resources.”
What about securing customers? Minoru Shimamoto writes:
At first, Inamori was not sure if Matsushita Electric would place a new order with Kyocera
for this component [U-Shaped Kelcima], but as they had been hoping, Matsushita Electron-
ics transferred orders for 200,000 units to Kyocera from Shofu Industries out of the original
400,000-unit order placed with Shofu. This was partly to hedge risk by placing parallel
orders with two companies to prepare for an increase or fluctuation in the number of
deliveries, but above all it was because Matsushita Electronics trusted this small newborn
company due to Inamori’s prioritizing of delivery even during the strike.3
Thus, Kazuo Inamori successfully launched Kyoto Ceramic.
Future-Oriented Market Cultivation and Technological

Development
After its successful launch as a startup company through the development of the
U-Shaped Kelcima, Kyoto Ceramic actively sought a growth strategy for the
company’s next phase. Significant in this process was Inamori’s pursuit of future-
oriented market cultivation and technological development. It was based on the
premise of growth through learning, rather than the maintenance of the status quo.
Minoru Shimamoto explains:
There was no way that orders for the U-Shaped Kelcima would continue forever, and it was
inevitable that Kyocera’s future growth depended on expanding its product repertoire.
Inamori took the U-Shaped Kelcima to Hitachi, Toshiba, Mitsubishi Electric, Sony, and
other companies that were researching and developing electron tubes at the time, inquiring
about the needs for ceramic-based electronic components using materials such as forsterite
and alumina . . . . Since home appliances were becoming popular during this period of rapid
economic growth, domesticating the production of expensive foreign-made parts was an
important issue for electrical appliance manufacturers. Therefore, different electronics
manufacturers gradually began to make proposals to Inamori, who visited them on sales
trips, asking Inamori if he could produce such and such ceramic parts for electronics.
On such occasions, surprisingly, Inamori immediately responded, “We can do it,” even if
he did not know if the parts could be completed with Kyocera’s technological capabilities at
the time. Still, he kept responding to their requests. Thus, Kyocera first obtained orders, then
developed new technologies to manufacture the products, managing to produce orders
barely in time. Behind this seemingly reckless approach was Inamori’s strong belief that
whatever could be made abroad could also be made at his company, and his view that even if
the technology was not yet perfected, his company could perfect it in the future. The
3
Ibid., p. 115.
company based its decisions for taking orders not on its technological capabilities at the
time, but rather on the assumption of future progress.4
This attitude and approach delivered great results in developing ceramic multilayer
packages for semiconductor integrated circuits. Kyoto Ceramic “received an inquiry
in the spring of 1969 from Fairchild Corporation of the United States for a high-
density package. Two ceramic boards with printed electronic circuits, 25 mm long,
25 mm wide, and 0.6 mm thick, were stacked on top of each other, and the two
boards were electrically connected through 92 0.25 mm holes, with 36 pins protrud-
ing from the periphery. The request was to develop this in three months.5”
It was extremely difficult for Kyoto Ceramic to meet this order. Tadao Kagono
explains that overcoming these difficulties gave birth to a unique confidence within
Kyoto Ceramic. Kagono begins by quoting Inamori’s own words:
The development team worked tirelessly for about two months, sleepless and uninterrupted,
and even forgot to eat if left unattended. The joy we felt when we finally managed to create
the product, even if it was only one piece, was irreplaceable.
The engineers involved in its development were completely focused on the task. In the
process of producing a single good product, awake or asleep, they kept thinking of solutions
to overcome the successive obstacles. They never ran away from difficult situations but
earnestly tackled development head-on.
As they continued, the technical problems that had seemed so difficult were gradually
resolved. It was as if God had been watching our desperate efforts and was so moved by our
pitiful state that He reached out His hand to us.
Sometimes, in a situation of pain and suffering and dire need, we may discover a
phenomenon that we had overlooked earlier and solve the problem in one fell swoop. This
moment, that we might call a revelation whispered by God, must be the path that leads to
genuine creation.6
Commenting on Inamori’s words, Kagono wrote: “Production of multilayer pack-

ages for semiconductors began the following year, in 1970. Through this kind of
work, a unique belief was created within Kyocera: the belief that a desire penetrating
even to the subconscious plays a decisive role in the fulfillment of a mission.7”
The successful development of ceramic multilayer packages brought about sig-
nificant advances in the business development of Kyoto Ceramic. Officially chang-
ing its name to Kyocera in 1982 (Showa 57), it evolved into a global company.
4
Ibid., pp. 116–117.
5
Op. cit., Kagono, T. (1998), p. 368.
6
Inamori, K. (1997). Keiten aijin: Watashi no keiei wo sasaetamono (Respecting heaven and loving
people: What supported my management) (pp. 84–86). Kyoto: PHP Institute, Inc. This expression is
quoted in op. cit., Kagono, T. (1998), pp. 368–369.
7
Op. cit., Kagono, T. (1998), p. 370.
An Entrepreneur Who Upholds His Philosophy on Management 229
Hourly Profit System and “Amoeba Management”
The success of the ceramic multilayer package gave Kazuo Inamori confidence in his
market cultivation and technological development capabilities. In addition, “It was
around this time that the hourly profit system. . . the prototype for the so-called
Amoeba Management system, was created.8”
Shimamoto Minoru explained this system:
The hourly profit system calculates the value added per hour per process by subtracting raw
materials cost and other expenses from the output and dividing it by the total hours worked.
This allowed employees to clearly see the value added, and easily understand how to
increase it. The approach of Amoeba Management, on the other hand, was to divide and
manage the organization, at the time becoming larger and larger, into smaller units [like
amoebas] as if each one was an independent small-to-medium sized company. The number
of such amoebas increased every year, totaling two in 1965, eight in 1966, fourteen in 1967,
and seventeen in 1968 (according to the 40th Anniversary Company History Compilation
Committee of Kyocera Corporation [2000],9 p. 63). The income and expense of each
amoeba were measured by the hourly profit system. It [the amoeba] split up as needed,
and the smaller units competed to increase the efficiency of each. This indeed was a system
to simultaneously maintain adaptability to the business environment and sustain organiza-
tional efficiency. 10
The “hourly profit system” and “amoeba management” that comprise “a system to
simultaneously maintain organizational efficiency and adaptability to the business
environment,” became deeply ingrained in the management of Kyoto Ceramic
(Kyocera), and served to continuously revitalize the organization. These simple
and unique organizational revitalization measures were later utilized in Kazuo
Inamori’s restructuring of Japan Airlines (JAL).
An Entrepreneur Who Upholds His Philosophy

on Management
Kazuo Inamori is also known as a business leader with a clear management philos-
ophy. Kazuhiro Tanaka, who presents Inamori’s philosophy of management, con-
siders Inamori an entrepreneur who is in the same league as Eiichi Shibusawa and
Konosuke Matsushita.11 Tanaka states: “The philosophical goal of Kyocera, as
8
Ibid., p. 367.
9
Kyocera Corporation (2000). The 40th anniversary company history compilation committee of
Kyocera Corporation. Hateshinai mirai he no chosen: Kyosera kokoro no keiei 40 nen (Challenge
toward an everlasting future: 40 years of Kyocera management from the heart). Kyoto: Kyocera
Corporation.
10
Op. cit,. Shimamoto, M. (2005), p. 118.
11
Tanaka, K. (2014). Keiei rinen teiji-gata: Shibusawa Eiichi, Matsushita Konosuke, Inamori
Kazuo (Management philosophy proposal style: Eiichi Shibusawa, Konosuke Matsushita and
formulated by Kazuo Inamori, is ‘to pursue the material and internal happiness of all
employees and at the same time contribute to the progress and development of
mankind and society.’ To achieve this goal, Inamori’s principles such as “Respect
the Divine and Love People,” “Adhere to Universal Principles,” and “Do What’s
Right as a Human Being” become the norms to be followed.12”
According to Tanaka, the following three points should be noted concerning the
entrepreneurs who present their philosophy on management.13
1. Their management philosophy is derived from their own earnest experience.
2. They have unwavering faith in their management philosophy.
3. They closely connect the “way of management” with the “way of human beings.”
Regarding point (1), Kazuhiro Tanaka says that in Inamori’s case, he had the
following background:
Inamori, who originally founded Kyocera in Showa 34 [1959] out of the “desire to put his
skills to the test,” was shocked when some of his younger employees soon confronted him
with a co-signed letter demanding a guarantee of their future treatment. Inamori spent three
days and three nights trying to persuade them and rejecting their demands, but the experience
made him realize for the first time that “Running a company is not about realizing your own
dreams, but about protecting your employees and their families, now and in the future."
(Inamori 201214, p. 40)15
On point (2) Tanaka states that “Kazuo Inamori has adhered to the ‘principle’ of
‘doing what is right as a human being and pressing on’ as the basis for his managerial
decisions. If you oppose this, you will never succeed, and if you adhere to it, at least
you will not make a big mistake.16” Finally, regarding point (3), Tanaka quotes
Inamori as saying: “I believe that by pursuing the ideal form of human beings, the
foundational pillar on which corporate management should be based will also
become clear.17” Tanaka evaluates him thus: “Inamori is an entrepreneur who
aimed to apply the ‘good way of living’ to the ‘good way of managing’.18”
Inamori’s management philosophy became official within Kyoto Ceramic
(Kyocera) as the “Kyocera Philosophy.” In 1984 (Showa 59), Inamori established
the Inamori Foundation with a private fortune of 20 billion yen and began awarding
the Kyoto Prize, an international award program, among his other charitable activ-
ities. The Kyocera Philosophy was thus communicated to a global audience.
Kazuo Inamori). In M. Miyamoto, T. Kagono, & Forum for Entrepreneurial Studies (Eds.),
Kigyoka-gaku no susume (Recommendation of entrepreneurial studies) (pp. 406–417). Tokyo:
12
Ibid., p. 408.
13
Ibid., p. 407.
14
Inamori, K. (2012). Shinpan keiten aijin: Zero kara no chosen (The new edition of respecting
heaven and loving people: Challenging from scratch). Kyoto: PHP Institute, Inc.
15
Op. cit., Tanaka, K. (2014), pp. 409–410.
16
Ibid., p. 412.
17
Op. cit., Inamori, K. (2012), p. 21.
18
Op. cit., Tanaka, K. (2014), p. 414.
Founding of Daini-Denden Inc. (DDI) 231
Founding of Daini-Denden Inc. (DDI)
Inamori’s entrepreneurial activities continued unabated even after Japan’s economic

bubble burst and the country’s economy began to slow down. From 2003 to 2004,
the “Weekly Economist” magazine published a series of interviews – “Testimonies
on Modern Industrial History” – with business leaders who had achieved exceptional
success even during the “Lost Decade of the 1990s.” Inamori appeared as one of the
interviewees, discussing the founding of Daini-Denden Inc. (DDI) and its subse-
quent development into KDDI.19
Kazuo Inamori (second from right, 2000) at the launch of KDDI (photo provided by Mainichi
Shimbun)
In 1985, the privatization of Nippon Telegraph and Telephone Public Corpora-

tion (NTT) ushered in the newly liberalized era of Japan’s telecommunication sector,
leading to the entry into the business of new firms collectively called New Common
Carriers (NCC). The first of such was Daini Denden Kikaku, established in 1984
under the leadership of Inamori, and renamed DDI in 1985. In founding DDI,
19
Gendai-sangyo-shi no shogen (9) Inamori Kazuo Kyosera meiyokaicho: Tsushin jiyuka
(jo) senjin wo kitte shin-denden wo hataage (Testimony on modern industrial history (9): Kazuo
Inamori, Kyocera Corporation honorary chairman, on the liberalization of telecommunications,
taking the lead in launching new common carriers), Shukan ekonomisuto (Weekly Economist),
December 2, 2003, pp. 68–71; and Gendai-sangyo-shi no shogen (10) Inamori Kazuo Kyosera
meiyokaicho: Tsushin jiyuka (ge) KDDI tanjo gappei hiwa wo akasu (Testimony on modern
industrial history (10): Kazuo Inamori, Kyocera Corporation honorary chairman, on the liberal-
ization of telecommunications, revealing a secret story behind the consolidation of KDDI), Shukan
ekonomisuto (Weekly Economist), December 9, 2003, pp. 48–52.
Inamori teamed up with Sachio Semmoto who had left NTT and pressed for the
liberalization of the telecom sector; Inamori also received support from Jiro Ushio of
Ushio Electric, Akio Morita of Sony, and Makoto Iida of Secom, who were all in
favor of deregulation.
In 2000, DDI merged with KDD, which had inherited the international telegraph
and telephone business from the (public) Kokusai Denshin Denwa Co. It also
merged with IDO Corp., whose major shareholders included Teleway and Toyota
Motor. The resulting organization became [the new] DDI Corp. In 2001, DDI
changed its name to KDDI, which still exists today.
I served as an interviewer of Inamori for an interview that appeared in the Weekly
Economist. As a result, I later had an opportunity to contribute an article to the
Weekly Economist concerning my impressions.20 Here are its contents:
During the interview with Mr. Kazuo Inamori, I was especially impressed by two points.
One was the process of establishing DDI as a “Columbus’ Egg” solution, boldly challenging
the Nippon Telegraph and Telephone Public Corporation [predecessor of NTT], and the
other was the process of establishing KDDI amidst stiff competition following DDI’s
founding.
Regarding establishment of DDI, we must not overlook the fact that the very emergence
of DDI itself was an “unexpected” event. When the Nippon Telegraph and Telephone Public
Corporation was to be privatized and the telecommunications business liberalized, conven-
tional wisdom assumed that the Japan National Railways, the Japan Highway Public
Corporation, and electric power companies, with assets suitable for laying telecommunica-
tions lines, would be first to enter the business. However, it did not play out that way. None
of them were enthusiastic about the idea. A stalemate emerged as Hisashi Shinto, the
president of Nippon Telegraph and Telephone Corporation feared that the privatization
might fail through lack of competition. The idea of establishing DDI, proposed by Kyocera’s
chief, Inamori, broke the stalemate. Thus, DDI became the “Columbus’ Egg,” and Japan
National Railways, the Japan Highway Public Corporation, and the electric power compa-
nies finally climbed aboard and entered the telecommunications business. The liberalization
of Japan’s telecommunications industry was a “once-in-a-century project,” but it material-
ized only with the influence of the pioneer Inamori.
Behind Inamori’s establishment of DDI were several circumstances that deserve special
mention. These include his encounter with Sachio Semmoto, the support from Jiro Ushio,
Akio Morita, Makoto Iida, and others, and the financial strength of Kyocera, giving the
company credibility. However, during the interview, I strongly felt that Mr. Inamori’s own
pioneering spirit was the essential factor in the birth of DDI. The establishment of DDI
would mark a major epoch not only in the deregulation of the telecommunications industry,
but also in pursuit of deregulating the whole Japanese economy. The doors of history are
often opened not by conventional wisdom but by the unexpected wisdom of a single pioneer.
Regarding the establishment of KDDI, through the interview I was able to understand the
“struggle” of DDI. However, it seemed more like a “travail” than a “struggle.” Mr. Inamori
spoke dispassionately of a series of interesting facts: obtaining cooperation from Mr. Shinto,
president of Nippon Telegraph and Telephone Public Corporation, regarding the laying of
microwave lines immediately after the company’s establishment; the failure of the first
dedicated telephone line business, as it was unable to exercise buying power such as at
20
Kikkawa, T. (2003). Paionia no eidan ga hiraita rekishi no tobira (The doors of history opened by
pioneers’ decisive judgement). Shukan ekonomisuto (The Weekly Economist), December 9, 2003,
pp. 50–51.
Restructuring Japan Airlines 233
Japan National Railways; cases in which headhunted managers could not always demon-
strate their full potential; internal opposition to the commercialization of the car phone;
disagreement between Mr. Inamori and Mr. Semmoto regarding the commercialization of
PHS21; managing to establish KDDI under the leadership of DDI while paying due consid-
eration to Toyota, to which DDI made concessions regarding the regional division of the car
phone business.
Nearly twenty years have passed since the liberalization of Japan’s telecommunications
business. In recent years, mobile communications centered on hand-held devices have
rapidly increased their weight in the telecommunications industry. In the Japanese market,
three companies, KDDI, NTT DoCoMo, and Vodafone, are competing fiercely for market
share. If KDDI had not existed, Japan’s mobile communications business would have been
“occupied” by member companies of the NTT Group, the successor of Nippon Telegraph
and Telephone Public Corporation, and by foreign companies. If that had happened, the very
meaning of telecommunications industry liberalization would have been subject to funda-
mental review. Actually, however, KDDI exists, and its “au” brand of cell phones still
sometimes takes the top spot in the share of monthly new subscribers. Kazuo Inamori
encouraged the employees gathered at the launch of DDI and spoke passionately about the
company’s philosophy to improve service and lower prices by stimulating full-fledged
competition between telecommunications companies. This philosophy continues to live on
today.
The final sentence, “This philosophy continues to live on today,” still holds today
(May 2019), more than 15 years after I penned the recollection above.
Restructuring Japan Airlines
In the 2010s, there was yet another event that further raised Inamori’s reputation as a
manager: successfully rebuilding bankrupt Japan Airlines in a short period of time.
JAL went bankrupt in January 2010 (Heisei 22) due to multiple factors such as its
dysfunctional board that remained dependent on the government even after the
airline’s full privatization and also on a group of parliamentarians close to the
transportation lobby; the coexistence of several labor unions and serious labor-
management conflicts; and the assumption that “a national flag carrier will never
go under.” To restructure the company, Inamori was appointed Chairman of the
Board in February of that year. He managed the restructuring of the airline with his
brilliant leadership. In September 2012, just two years and seven months after the
delisting of the airline due to bankruptcy, JAL was successfully relisted on the First
Section of the Tokyo Stock Exchange.
After assuming the chairmanship, the first thing he did to rebuild Japan Airlines
was to conduct thorough leadership training that included elements of the “Kyocera
Philosophy.” At first there was strong resistance within JAL, but gradually the “JAL
Philosophy,” based on its Kyocera counterpart, took root. In particular, the Amoeba
Management System of “visualizing” income and expenses for each workplace and
facilitating improvements in business performance, demonstrated great effect.
21
The acronym of Personal Handphone System, indicating the simplified digital telephone system.
Methods such as managing the income and expenses for each aircraft became the
norm thereafter.22
The hourly profit system and amoeba management, mechanisms to simulta-
neously maintain organizational efficiency and adaptability to the business environ-
ment, proved effective even outside the boundaries of Kyocera. The universality of
Inamori’s management philosophy and management methods became clear to
everyone.
parts of it.
22
See JAL yosogai no seiko de chumoku, Inamori-shi no migiude Morita JAL Tokubetsu komon ga
akasu ameba keiei no jissai (JAL gets attention for its ‘unexpected’ success: Morita, a special
adviser to JAL and the right-hand man of Mr. Inamori, tells about the reality of amoeba manage-
ment). Toyokeizai ONLINE (Toyo Keizai ONLINE), September 18, 2012; and Imai, Y. (2015).
Nihon koku no saiken ni miru keieisha Inamori Kazuo no keiei tetsugaku (The management
philosophy of manager Kazuo Inamori seen in the reconstruction of Japan Airlines), In Nihon
keiei rinri gakkai-shi (Journal of the Japan Society for Business Ethics), No. 22.
Case 19 Toshifumi Suzuki: Convenience
Store Innovations from Japan to the World
Abstract This chapter introduces Toshifumi Suzuki, leader of 7-Eleven Japan, who
brought about innovation in distribution and introduced the franchise system. Suzuki
was referred to as the “God of Retail”.
The Dynamism of Japan’s Retail Industry Development
One area seldom emphasized in textbooks of Japanese business history is the

distribution industry. The distribution structure contains multiple stages of whole-
saling and features a large, even excessive, number of micro retailers, with many of
the retail outlets providing the proprietors’ main income source. This structure has
been regarded as a product of the “backwardness of Japanese capitalism” and the
“lower level of economic development in Japan.”1
Unlike the disparity in size between large corporations and SMEs, which have
undergone changes over the years, these unique characteristics of Japan’s distribu-
tion industry remained basically intact even after the high-growth period. This
continuity is clearly demonstrated by the continued increase in the number of
micro-retailers in Japan through the early 1980s.
However, despite the persistence of the traditional distribution structure that dates
back to the prewar period, throughout the era of high economic growth, significant
changes did take place in Japan’s distribution industry from the postwar reconstruc-
tion years to the latter era. Recent studies have clarified the circumstances under
which Japan’s distribution industry managed to maintain its structure despite having
undergone major changes.2
1
See Tamura, M. (1986). Nihon-gata ryutsu shisutemu (Japanese-style distribution system). Tokyo:
Chikura Publishing Company.
2
For details, see Takaoka, M. (1997). Sengo fukkoki no Nihon no hyakkaten to itaku shiire
Nihonteki torihiki kanko no keisei katei (Japanese department stores in the postwar recovery
period and consigned purchase: The formation process of Japanese-style trade practices).
Keieishigaku (Japan Business History Review), 32(1); Kikkawa, T., & Takaoka, M. (1997).
Sengo Nihon no seikatsu yoshiki no henka to ryutsu heno inpakuto (The transformation of postwar
© Kreab K.K. 2023 235

236 Case 19 Toshifumi Suzuki: Convenience Store Innovations from Japan to. . .
A significant change that occurred postwar and later in the distribution industry
was the major transformation in Japan’s consumption patterns, and the emergence
and growth of new retail formats that corresponded to this change. The transforma-
tion of consumption progressed on two fronts, quantitatively as in a rise in living
standards, and qualitatively as seen in westernization of lifestyles.
One of the first new retail formats to grow rapidly in response to change was the
department store. Although Mitsukoshi became Japan’s first department store with
the completion of its new store in 1914 (Taisho 3), the business as a whole did not
take off until the late 1920s and 1930s, with a surge in demand for kimono.3 After
WWII, Japan’s department stores experienced yet another period of rapid growth in
the early 1950s, this time riding the wave of popularity in western style fashion and
ready-to-wear clothing. The country’s first department store law was enacted in 1937
(Showa 12) and the second in 1956 when the government belatedly tried to regulate
expansion of the department store business.
A new type of retail business that developed after department stores was the
supermarket, emerging during Japan’s period of rapid economic growth. Japan’s
supermarkets grew rapidly in response to westernization of eating habits. Daiei,
founded by Isao Nakauchi, opened its first store in Osaka in 1957. By 1972, 15 years
after opening, it had surpassed Mitsukoshi in sales, becoming the largest retailer in
Japan. The Large-Scale Retail Stores Law (Large Stores Law), enacted in 1973 and
revised and strengthened in 1978, was an attempt to regulate supermarkets, which
had expanded their operations during the period of high economic growth.
Against the backdrop of the supermarkets’ rapid growth, the theory of a “distri-
bution revolution” dominated Japan in the early 1960s, emphasizing the following
two points: (1) With the development of supermarkets, the number of small retailers
will decrease; and (2) The simultaneous progression of mass production at the
production stage and of mass sales at the retail stage (as with the expansion of
supermarkets), would eliminate wholesale at the intermediate stage (the so-called
elimination of the middlemen).4 However, as already noted, the number of micro-
retailers continued to increase and wholesalers’ business remained vibrant. Why did
the “distribution revolution” theory fall short of its predictions? In other words, why
did Japan’s traditional distribution structure remain intact despite the growth of
department stores and supermarkets? There are two reasons:
Japan’s lifestyle and an impact on distribution). In The University of Tokyo, Shakaikagaku kenkyu
(Journal of Social Science), 48(5); and Takaoka, M. (1999a). Kodo keizai seichoki no supamaketto
no shigen hokan mekanizumu: Nihon no ryutsu kakumei no jitsuzo (The resource supplementation
mechanisms of supermarkets in the rapid economic growth period: The reality of Japan’s distri-
bution revolution). In Shakai keizai shigaku (Socio-Economic History), 65(1).
3
Suzuki, Y. (1980). Showa-shoki no kourisho mondai: Hyakkaten to chusho shoten no kakuchiku
(The question of retailers in the early Showa period: Competition between department stores and
medium and small-sized stores). Tokyo: Nikkei Publishing Inc.
4
See Hayashi, S. (1962). Ryutsu kakumei: Seihin keiro oyobi shohisha (Distribution revolution:
Product sales channel and consumer). Tokyo: Chuokoron-shinsha. Inc.
The Dynamism of Japan’s Retail Industry Development 237
The first is that even after the period of high economic growth, the percentage of
fresh food consumption remained high in Japan, even as westernization of eating
habits continued. Until the high-growth period, Japanese supermarkets were unable
to develop a pre-packaging system for fresh produce and thus didn’t succeed in
selling them in a self-service format in the aisles (the typical supermarket style we
are familiar with today). This left room for small-scale food retailers such as
greengrocers, fishmongers, and butchers, who made up a large portion of the
micro-retailers, to continue increasing their numbers.
Second, through their relationships with wholesalers, department stores and
supermarkets in Japan compensated for the lack of managerial resources necessary
for growth. During the postwar reconstruction period, department stores lacked
sufficient staff to properly stock and sell the new lines of clothing, especially
ready-to-wear garments. Emerging clothing wholesalers such as Kashiyama Com-
pany (currently Onward Kashiyama), led by Junzo Kashiyama, made up for this lack
of capacity by dispatching temporary clerks to the sales floors. In addition, during
the high-growth period, supermarkets were plagued by a lack of funds needed for
chain operations (an essential requirement for selling low-cost, processed food
items).5 Of great significance in supplementing this shortfall was the turnover
difference funds6 that wholesalers, such as those handling food items, effectively
provided to supermarkets. Contrary to the forecast by “distribution revolution”
theory, Japanese supermarkets during the high-growth era did not adopt a policy
of eliminating wholesalers. Thus wholesalers remained active even after the high
growth period as department stores and supermarkets, the standard-bearers of the
new retail format, actively incorporated wholesalers in their operations.
During Japan’s period of stable growth after the oil crisis, a new retail format
gained traction, differing from department stores and supermarkets: the convenience
stores (konbini). Japan’s first convenience store opened in 1969, and by 2002, the
total number of convenience stores nationwide had reached 41,770.7
Japan's convenience store business started with the US stores as a model, but soon
achieved its own systemic innovations that eventually became a model for their
U.S. counterparts.8 Systemic innovations covered a wide scope in areas such as retail
5
The expression “chain operation” refers to the management of numerous stores, achieving
economies of scale by functionally separating sales operations for greater efficiency.
6
The expression “turnover difference funds” refers to the surplus funds owned by supermarkets
when the period before the payment to wholesalers is longer than the period of cash sales to the
consumers.
7
The Research and Statistical Department, the Economic and Industrial Policy Bureau, the Ministry
of Economy, Trade and Industry (2005). 2005 wagakuni no shogyo: Aratana hatten wo mezashi
kawariyuku shogyo (Our country’s commerce in 2005: Changing commerce for new development).
The Ministry of Economy, Trade and Industry.
8
For the development of the convenience stores in Japan, see Kawabe, N. (1994). Sebun-erebun no
keieishi: Nichibei kigyo keieiryoku no gyakuten (The business history of Seven Eleven: Reversal of
Management Power of Japan and the United States). Tokyo: Yuhikaku Publishing Co., Ltd.; and
Yahagi, T. (1994). Konbiniensu sutoa sisutemu no kakushinsei (The innovativeness of the
operations (high-mix, low-volume inventory sales; 24/7 operations); product supply

(“short lead time and small lot”; integration of production and sales; joint product
development); and organizational structure (information network; strategic alliance;
franchise system). The growth of Japanese convenience store companies was
remarkable because they adopted a regionally concentrated, multiple store deploy-
ment strategy in which companies competed with each other to realize economies of
scale in information networks and distribution. Because Japanese convenience store
companies did not have the “location-related” resources and funds necessary to carry
out their Dominant Strategy on their own, they actively utilized the franchise system
to compensate for the lack of resources.
7-Eleven Japan, led by Toshifumi Suzuki, the leading company in Japan’s
convenience store industry, has led a series of systemic innovations. In 1990,
7-Eleven Japan embarked on a bailout of its U.S. parent company, Southland
Corporation, which had fallen into a managerial crisis. In addition, in 1993,
7-Eleven Japan’s ordinary profit surpassed that of its Japanese parent company,
Ito-Yokado. Thus 7-Eleven Japan scored “double upset wins” over its parents.
Brief Biography of Toshifumi Suzuki
Toshifumi Suzuki spearheaded the creation of the innovative Japanese convenience

store system. A salaried manager with a university degree who rose on the corporate
ladder, Suzuki was neither a venture capitalist like Kazuo Inamori or Masayoshi
Son, nor an owner-manager like Tadashi Yanai. However, like them, he created a
business model that became a global success.
Suzuki was born in 1932 (Showa 7) in Sakaki-machi, Hanishina County, Nagano
Prefecture. After graduating from Chuo University with a degree in economics, he
worked for Tokyo Publishing and Sale (now Tohan) before joining Ito-Yokado in
1963 and becoming a director in 1971.
In 1973, the company formed a partnership with Southland Corporation, a U.-
S. company that operated 7-Eleven convenience stores, to establish York-Seven
Co. Suzuki was appointed an executive director of York-Seven.
The following year, Japan’s first 7-Eleven store opened in Koto Ward, Tokyo. In
1975, 7-Eleven’s 24/7 operations began in Koriyama City, Fukushima Prefecture.
In 1978, York-Seven changed its name to 7-Eleven Japan, with Suzuki assuming
the post of president. In 1991, 7-Eleven Japan acquired the management rights of the
U.S. Southland Corporation through a bailout. The following year, Suzuki became
president of Ito-Yokado also, and in 2003 he became chairman and CEO of Ito-
Yokado and CEO of 7-Eleven Japan. When Seven & i Holdings was established in
2005, Suzuki became its chairman and CEO.
convenience store system). Tokyo: Nikkei Publishing Inc. The following description is based on
these studies unless otherwise noted.
Suzuki’s Convenience Store Deployment Strategy 239
In 2016, after the board of Seven & i Holdings rejected his proposal to remove the
then president of 7-Eleven Japan, Ryuichi Isaka, Suzuki announced his retirement
from active duty. He then became an honorary advisor to Seven & i Holdings.
Suzuki’s Convenience Store Deployment Strategy
Toshifumi Suzuki was called the “God of Retail” for establishing the innovative
convenience store system. In 1969 (Showa 44) the very first convenience store in
Japan, “My Shop Toyonaka,” opened in Osaka. After that, convenience stores made
rapid progress and became indispensable in the daily lives of the Japanese. Conve-
nience stores replaced department stores and supermarkets, becoming the “third
protagonist of retail” in postwar Japan.
Mika Takaoka explains the reason for this development:
One factor explaining the rapid growth of convenience stores was the change in consumer
behavior referred to as the “instantization of consumption” (Yahagi 1994,9 pp. 58–63), to
which existing retailers were unable to adequately respond. By thoroughly pursuing conve-
nience, which consists of three elements – ‘nearby’ (location), ‘anytime’ (hours), and
‘availability of daily necessities’ (product lineup) – convenience stores have effectively
responded to new consumer demands during a period of stable growth.”10
Takaoka went on to note that the development of convenience stores in Japan had
the following two characteristics:
The first was the extremely rapid pace of convenience store deployment. In the case of Daiei,
Japan’s largest supermarket chain at the time, with 223 stores as of 1998, the number of
stores had risen 2.06-fold in the 20 years since 1973 (108 stores in that year). By contrast,
7-Eleven Japan, Japan’s largest convenience store company with 7,001 stores as of 1997,
increased its store count 18.67-fold in the 20 years after 1977 (375 stores in 1977). The
comparison between the two companies illustrates the speed of convenience store develop-
ment in comparison to that of supermarkets.
Second, convenience store deployment brought a marked concentration of stores in
specific regions. This method of store deployment is called the “Dominant Strategy.” A
comparison of Daiei and 7-Eleven Japan shows that Daiei stores existed in 35 prefectures in
1993, while 7-Eleven Japan stores were present in only 25 prefectures in 1997.11
9
Op. cit., Yahagi, T. (1994).
10
Takaoka, M. (2004). Gendai no ryutsu kigyo to kigyokan kankei (Modern distribution companies
and inter-company relations). In M. Kamekawa, M. Takaoka, & N. Yamanaka, (Eds.). Nyumon
gendai kigyo-ron (An introduction to modern company theory). (p. 309). Tokyo: SHINSEI-SHA
Co., Ltd.
11
Ibid., pp. 310–311.
Toshifumi Suzuki, who was chairman of 7-Eleven Japan as of 2003, explained

why 7-Eleven Japan stayed with the Dominant Strategy.
The reason for using the Dominant [Strategy] is that, when delivering products, transporta-
tion efficiency is higher when stores are concentrated in one area. Not only that, it also
allows for speedy deliveries, so fresh products can be delivered. It also enables a single food
factory to deliver to multiple stores, increasing the productivity of the factory. From the
supply side, delivering products to stores, the Dominant [Strategy] is advantageous. We are
now delivering boxed lunches to stores three times a day, and this is possible because the
distance between stores is short and delivery costs are low, thanks to Dominant Strategy.
From the customer’s point of view, 7-Eleven’s presence is literally “convenience,” whether
they look to the right or to the left. In this sense, the Dominant Strategy is crucial for the retail
industry.12
Introduction of the Franchise System
The innovative convenience store system established by Toshifumi Suzuki was also
characterized by its active introduction of the franchise system. The franchise system
is defined as “a system in which the franchisor (the company offering the license, or
the headquarters) grants the franchisee (the company receiving the license, or
participating retailers) the right and license to conduct business activities using the
trade name, trademark and other resources in return for a certain amount of com-
pensation. It is also a continuous relationship that provides subsidies for organiza-
tional development, education and training, merchandising, and business
management”.13
In contrast to the dominance of directly run stores in the United States, the
birthplace of convenience stores, the franchise system has spread widely among
convenience stores in Japan. Mika Takaoka explains the reason:
Japanese convenience store companies adopted the franchise system because (a) in order to
deploy the Dominant Strategy, it was necessary to open many stores in a certain area, and
convenience store companies did not have the managerial resources (i.e., funds to purchase
land and buildings for stores) to achieve this. It was also important that (b) in the case of a
franchise system, the franchisee has a sense of running “my own store,” which increases the
incentive for the business and raises the quality of consumer service compared with stores
operated by [parent] company employees.... (a) is consistent with the “theory of constraints”
and (b) with the “incentive theory of motivation”.14
12
Gendai sangyo-shi no shogen (2) konbini tojo (chu) Suzuki Toshifumi sebun irebun Japan kaicho
intabyu (Testimony on modern industrial history: (2) The advent of convenience stores, an
interview with Toshifumi Suzuki, Seven Eleven Japan Chairman), Shukan ekonomisuto (Weekly
Economist), October 14, 2003, pp. 41–42.
13
The Distribution Economics Institute of Japan (Eds.) (1972). Konbiniensu sutoa manyuaru
(Convenience store manual). (p.17). Small and Medium-Sized Enterprises Agency, Corporate
Bureau, the Ministry of International Trade and Industry (supervised). Small and Medium-Sized
Enterprises Agency.
14
Op. cit., Takaoka, M. (2004), p. 313.
Product-by-Product Merchandise Management and “Hypothesis-Testing Ordering” 241
In light of this commentary, the theory of constraints held true in the early stage of
development when Japanese convenience companies (franchisors) lacked sufficient
managerial resources. However, the franchise system continued to take hold in Japan
even after convenience store companies grew and were freed from resource con-
straints, arguably because the circumstances highlighted by the incentive theory of
motivation remained.
Product-by-Product Merchandise Management

and “Hypothesis-Testing Ordering”
The distribution innovations led by Toshifumi Suzuki were put into practice not only
at 7-Eleven convenience stores but also at Ito-Yokado supermarkets. One element of
the distribution innovations was the practice of “hypothesis-testing ordering” for
product-by-product managing of merchandise.
A common feature of two of the world’s largest retailers, U.S. Wal-Mart and
7-Eleven Japan, is their introduction of POS (Point of Sales) systems in the early
1980s. They are also similar in having established competitive advantage by com-
bining their information, distribution, and product procurement strategy to imple-
ment their own distinct SCM (Supply Chain Management) systems earlier than their
competitors. However, some differences in their approaches could be described as
stark contrasts.
Mika Takaoka and Mihwa Lee compared Wal-Mart and Ito-Yokado, as they are
of similar business types, and noted “Wal-Mart’s low SG&A (selling, general, and
administrative expenses) ratio and Ito-Yokado’s high gross margin”.15 According to
Takaoka and Lee:
Japanese labor costs, including those of part-time workers are relatively high, and land and
rent are relatively expensive, even though land prices have declined since the collapse of the
economic bubble. This has undoubtedly kept Ito-Yokado’s SG&A ratio high. However, this
alone does not explain Wal-Mart’s low SG&A ratio. Basically, this low level should be
viewed as a reflection of Wal-Mart’s SCM focus on overhead cost reduction. On the other
hand, Ito-Yokado is able to maintain a high gross profit margin (that is, it is able to set
relatively high selling prices) because, as in the case of 7-Eleven Japan, it properly manages
merchandise by-product at its stores and makes available a product lineup that is responsive
to the needs of customers. When determining its product lineups, Ito-Yokado and 7-Eleven
Japan focused on “hypothesis-testing ordering,” which is different from “automatic order-
ing,” and this factor contributed to high gross profit margins.16
15
Takaoka, M., & Lee, M. (2008). Sapuraichen keiei no shinka ni okeru kyotsusei to taishosei,
kourigyo: worumato to sebun ando ai (Commonality and contrasts in the evolution of supply chain
management—retail business: Walmart and Seven & i). In H. Shiomi, & T. Kikkawa (Eds.), Nihon
kigyo no gurobaru kyoso senryaku: Nyuekonomii to ushinawareta junen no saikensho (Japanese
companies’ global competition strategy: A reexamination of new economy and the “Lost Decade”)
(p. 258). Nagoya: Nagoya University Press.
16
Ibid., pp. 258–259.
In other words, while Wal-Mart focused on lowering SG&A costs in SCM by

utilizing information obtained from POS systems and other sources, Ito-Yokado and
7-Eleven Japan combined the information with hypothesis-testing ordering, rather
than automated ordering, to achieve high gross profit margins.
Susumu Ogawa explains why 7-Eleven Japan chose to use hypothesis-testing
ordering instead of automated ordering:
Product-by-product merchandise management would be meaningless if it were just to obtain
sales information for each individual item. Only by utilizing the information on individual
items in the process of ordering, is product-by-product merchandise management fully
accomplished. In fact, in the convenience store industry, after digitizing order history and
sales information, there are two ways to utilize the data for order placement. One is termed
automated ordering, and the other is termed hypothesis-testing ordering.
In automated ordering, sales information gathered through digital devices is calculated
by computer using formulas pre-determined by corporate headquarters, and the computation
results are given to stores. The stores are informed of the quantity of items that they should
order.... The advantage of this automated ordering is that the person in charge of ordering
does not need much skill.... This is helpful for convenience stores, where part-time
employees and temporary workers are the main labor force.
But 7-Eleven Japan did not adopt automated ordering. Its thinking was that in automated
ordering, the order quantity is basically recommended by corporate headquarters.... Under
such a system, wouldn’t the person in charge of placing orders stop thinking about what kind
of products are in demand at his or her store?... The store clerks would lose interest in which
products are selling, and as a result, wouldn’t they become insensitive to changes in market
trends?...
Thus, the company devised the hypothesis-testing ordering method. Placing orders based
on the hypothesis-testing model is like automated ordering: sales history and results are
saved as digital information and the information is used for ordering. However, hypothesis-
testing differs decisively from automated ordering in that a person in charge of ordering at a
store, rather than corporate headquarter computers, analyzes the data and determines the
order quantity.17
7-Eleven Japan differed not only from Walmart but also from Japanese compet-
itors in that it adopted hypothesis-testing ordering instead of automated ordering. As
we have seen, Toshifumi Suzuki achieved numerous distribution innovations and
was called the “god of retail.” Although the convenience store was originally born in
the United States, Suzuki refined it into an innovative convenience store system
which then spread from Japan to the rest of the world. Suzuki may have been
disappointed that he retired from active duty in 2016, but there is no doubt his
accomplishments will continue to shine brilliantly into the future.
17
Ogawa, S. (2000). Dimando chen keiei: Ryutsugyo no shin bijinesumoderu (Demand chain
management: New business model of the distribution industry) (pp. 80–82). Tokyo: Nikkei
Publishing Inc.
Product-by-Product Merchandise Management and “Hypothesis-Testing Ordering” 243
parts of it.
Case 20 Tadashi Yanai and Masayoshi Son:
Exceptional Challenges Undertaken by
the Two Risk Takers
Abstract This chapter introduces Tadashi Yanai, founder of Uniqlo, and

Masayoshi Son, founder of the Softbank Group. Both entrepreneurs took on signif-
icant risk and investment to successfully expand their businesses in Japan and
overseas.
Tadashi Yanai Before 2003
Tadashi Yanai and Masayoshi Son became the most successful entrepreneurs in
Japan after the economic bubble burst in the early 1990s. The two men are close
friends. As of May 2019, Yanai served as an external board member of Softbank, the
company founded by Son.
Tadashi Yanai was born in Ube City, Yamaguchi Prefecture in 1949 (Showa 24).1
After graduating from the School of Political Science and Economics, Waseda
University, he joined Ogori Shoji in 1972. The company was established 9 years
earlier (in 1963) by his father, Hitoshi Yanai. In 1984, Tadashi Yanai replaced his
father as president of Ogori Shoji and started opening stores named Uniqlo, which
meant “unique clothing.” The first Uniqlo store opened in Hiroshima City in 19842
and the first “roadside store,” located along major roads, with a large parking space
opened in Shimonoseki City in 1985, becoming the protype for later Uniqlo stores.3
Tadashi Yanai’s business began to grow around the time he rebranded his
company from Ogori Shoji to Fast Retailing in 1991. The company listed on the
Hiroshima Stock Exchange in 1994 and on the Second Section of the Tokyo Stock
Exchange in 1997. In 1998, the “Uniqlo fleece” with a price tag of 1900 yen became
a big hit. In the same year, the Uniqlo Harajuku store opened in Shibuya Ward,
Tokyo, the first outlet in the urban center of the Tokyo metropolitan area. The
1
The following description of Tadashi Yanai and Fast Retailing is primarily based on Fast
Retailing’s website, About Us: https://www.fastretailing.com/jp/about/.
2
Uniqlo Fukuromachi Store closed in 1991.
3
Uniqlo Yamanota Store closed in 1991.
© Kreab K.K. 2023 245

246 Case 20 Tadashi Yanai and Masayoshi Son: Exceptional Challenges. . .
following year, Fast Retailing was listed on the First Section of the Tokyo Stock
Exchange.
Tadashi Yanai opened Fast Retailing’s Shanghai office in 1999 to better manage
production in China. In 2002, Uniqlo opened a store in Shanghai and began
marketing operations in addition to production in China. Uniqlo’s very first overseas
foray had been a year earlier in 2001 when it opened a store in London. In 2003,
Uniqlo’s cashmere campaign drew much public attention.
Uniqlo Kicks Off the “Made in China” Era
Tadashi Yanai’s business made a great leap with its hugely popular line of fleece
products, but the biggest contributor to this success was the establishment of a
production system in China. Yasuhiko Hasegawa played a key role in this process,
leaving Toray International in 1994 to establish Personal Care Systems Co. and
becoming its president.
In a 2016 interview article, Hasegawa looked back at 1994 and described the
circumstances in which he served as the bridge between Tadashi Yanai of Fast
Retailing and several Chinese factories.
In Japanese business practice, the establishment of a relationship between two parties is
solely on a company-to-company basis. The fact that I had worked for Toray meant little,
and few would listen to me since I was no longer associated with a major company. The only
person who said, “That’s interesting – Let’s do it” was Tadashi Yanai of Uniqlo. 4
After quoting Hasegawa, the article continues as follows:

Immediately, Hasegawa started negotiating with factories that showed a willingness to take
on production for a Japanese company. Sewing factories and fabric makers that had been
producing clothing items for leading American apparel brands agreed to payment at the
“Uniqlo price” on the condition that their relationship would be long term....
The following year, in 1995, Uniqlo began production at Chinese factories owned by a
Hong Kong company that was already doing small-scale work for European and U.-
S. companies, and this prompted the company’s rapid advance.... After that, Hasegawa
appointed himself as the “Uniqlo Preacher” (i.e., Uniqlo evangelist) and went on to cultivate
a network of production factories in China.
Hasegawa recalled, “I told them, ‘I don’t need anything in return, but please take a
chance on Uniqlo as Yanai is a trustworthy man,’ and completed the deals. To Yanai, I said,
‘The group of companies I would like to introduce to you have been spearheading casual
wear production in Hong Kong for Europe and the United States and are deeply versed in
4
HQ (web magazine of Hitotsubashi University) (2016). PEOPLE miryoku aru sotsugyosei: Uniqlo
no chugoku seisan taisei wo kodineto shi yakushin wo sasaeta sono keiken wo ikashi gurobaru
jinzai wo ikusei, kabushikigaisha pasonarukeasisutemuzu daihyotorishimariyakushacho Hasegawa
Yasuhiko (PEOPLE an attractive alumna who coordinated Uniqlo’s production system in China
and supported its remarkable progress. Yasuhiko Hasegawa, President and CEO of Personal Care
Systems Co., Ltd., who used that experience to develop global human resources), Vol. 51. https://
www.hit-u.ac.jp/hq-mag/archive/pdf/hq51.pdf.
Uniqlo Kicks Off the “Made in China” Era 247
fashion. They are especially strong on American casual wear, and their products are among
the best in the world in terms of quality and comfort.’ I made such presentations to Yanai and
asked him to allow me to work toward the successful alliance.”
Thus, Uniqlo was able to obtain a high-quality, yet overwhelmingly cost-effective
production base by partnering with a group of top-notch factories that Hasegawa had
cultivated. Starting with around a $1 million investment, Uniqlo expanded its operation,
generating a major boom through the release of fleece clothing in 1999. In the same year,
Uniqlo opened its first overseas office in Shanghai to handle production management. The
company had established a full-scale production system.5
The interview concludes with the following statement by Hasegawa:

When we first met, Uniqlo was a company with annual sales of about 25 billion yen, but it
quickly grew to 100 billion yen and then to 200 billion yen. Mr. Yanai is a man who truly
keeps doing his best every day. That is why he was able to realize this level of success in his
own lifetime. The Chinese people to whom I have introduced Mr. Yanai have all come to
admire him greatly. 6
Parenthetically, in the series “Testimonies on Modern Industrial History” published

by the “Weekly Economist” magazine from 2003 to 2004, Tadashi Yanai was
among the interviewees that included such names as Kazuo Inamori and Toshifumi
Suzuki. 7 I was one of those interviewing Yanai. Here are my impressions of the
interview that I later contributed to the same magazine.8
The recent influx of Chinese products in Japan is often referred to as a “threat” that will lead
to the “hollowing out” of Japanese industry. It is true that Japan-China trade has seen a
significant surplus of Japanese imports in recent years. However, when the Japan-China
trade balance is recalculated taking into account the export surplus from Japan to Hong
Kong, it is clear that with the exception of FY2001, Japanese exports to China have
remained in surplus even in recent years. The reality of late is that the “triangular trade”
between Japan, Hong Kong, and China has been taking root: Japan is exporting high-value
components to China via Hong Kong, assembly is taking place in China, and Japan is
importing back the finished goods.
In other words, the influx of Chinese products in the Japanese market reflects the
deepening division of labor between the two countries rather than the hollowing out of
Japanese industry. Japanese consumers are benefiting from the trend, so the “made-in-China
era” can be welcomed.
5
Ibid.
6
Ibid.
7
See Gendai-sangyo-shi no shogen (20) Yanai Tadashi fasuto riteiringu kaicho: Meido in chaina no
shogeki ‘boku no shobai no sensei ha Honkon no hito’ (Testimony on modern industrial history
(20): Tadashi Yanai, Chairman of Fast Retailing—The impact of made in China, ‘my business
teacher is a person in Hong Kong’), Shukan ekonomisuto (Weekly Economist), February 24, 2004,
pp. 50–53; Gendai-sangyo-shi no shogen (21) Yanai Tadashi fasuto riteiringu kaicho: Meido in
chaina no shogeki, chugoku de seisan kanri ni seikoshita riyu wo kataru (Testimony on modern
industrial history (21): Tadashi Yanai, Chairman of Fast Retailing—The impact of made in China,
telling the reason why he succeeded in production control in China). Shukan ekonomisuto (Weekly
Economist), March 2, 2004, pp. 42–46.
8
Kikkawa, T. (2004c, March 2). Kokusai bungyo no shinka wo shochosuru Uniqlo seihin (Uniqlo
products symbolize the deepening of the international division of labor). Shukan ekonomisuto
(Weekly Economist), pp. 44–45.
The Made in China era in the Japanese market began with the Uniqlo brand of clothing
products launched by Fast Retailing led by Yanai (hereafter Fast Retailing is referred to as
Uniqlo). Uniqlo dispelled the “cheap and bad” image associated with Chinese products and
went on to instill in consumers’ minds a sense of trust that Chinese products are “cheap and
good.” What emerged clearly through the interview with Yanai was his progressive business
model that initiated the Made in China era.
Uniqlo describes its business model as “a manufacturing retailer that provides high-
quality, low-priced casual wear brands through comprehensive in-house control over plan-
ning, production, distribution, and sales.” At first glance, this business model appears to be
no different from the SPA model (SPA stands for Specialty store retailer of Private label
Apparel) adopted by others. However, Uniqlo stands out in its active involvement in the
production process in China and has literally accomplished “comprehensive in-house
control” with the following aspects: (1) it actively recruited Chinese students and trained
them to assume important roles before assigning them to production management; (2) it
directly interviewed young managers at China’s emerging township and village enterprises
(TVEs) and chose suppliers; (3) it selected factories based not only on their size and facilities
but also on their managers’ attention to quality control and contract fulfillment; (4) after
placing orders to about 140 factories, it pared down the number based on their performance
before continuing business relations; (5) Uniqlo focused on becoming the main customer for
these factories so that they would handle urgent orders; and (6) for the selected factories,
Uniqlo adhered to a long-term vision and expected factories to learn from failure rather than
take a short term view and end the relationship. Through these measures, Uniqlo achieved
“comprehensive in-house control” over production, and transformed the Japanese con-
sumers’ image of Chinese products.
After the boom generated by the fleece line of products launched in 1999 died down,
Uniqlo faced harsh commentary. However, if we look at Uniqlo’s development over a longer
period and consider the fleece boom as transitory, we see that Uniqlo has grown steadily,
both in terms of sales and profits, and continues to grow. Perhaps the most important factor
in the success is Yanai’s character as a “manager resilient to failure.” The title of a recently
published book by Yanai is “One Win, Nine Defeats.”9 In an interview, he emphasized that
making a mistake with a relaxed mindset helps keep the venture spirit alive. Uniqlo has been
able to achieve long-term growth without losing the venture spirit precisely because it has a
leader capable of dealing constructively with failures.
Yanai’s “resilience to failure” means that he is also “good at exiting.” For

example, Fast Retailing launched a food business in 2002 under the brand name
“SKIP,” but withdrew 2 years later. One who is good at withdrawing can also launch
a sharp offense. Yanai’s risk-taking skill seems to be rooted in his resilience against
failure.
Tadashi Yanai Since 2004
After 2004, Yanai continued to rapidly expand his business while making swift
withdrawals as needed. First, the company accelerated its expansion overseas,
establishing the “Uniqlo Design Studio, New York, Inc.” in the United States in
9
Yanai, T. (2003). Issho kyuhai (One win, nine defeats). Tokyo: SHINCHOSHA Publishing
Co., Ltd.
Tadashi Yanai Since 2004 249
Table 1 Uniqlo’s foreign store development since 2005

2005 First South Korean store in Seoul; first U.S. store in New Jersey (closed in 2006)
2006 First global flagship store in SoHo, New York
2007 Global flagship store on Oxford Street in London; first major store in South Korea in the
Myeongdong district of Seoul; first French store on the outskirts of Paris, La Défense
2009 First Singaporean store in Tampines One; global flagship store near Opéra, Paris
2010 First Russian store in Moscow; global flagship store on Nanjing Xi Lu, Shanghai; first
Taiwanese store in Taipei; first Malaysian store in Kuala Lumpur
2011 First Thai store in Bangkok; global flagship stores in Ming Yang Department Store,
Taipei; 5th Avenue, New York; and in Myeongdong district, Seoul
2012 First Filipino store in Manila; first U.S. west coast store in San Francisco
2013 First Indonesian store in Jakarta; Grameen Uniqlo opens first two stores simultaneously in
the city of Dhaka, Bangladesh; global flagship store in Shanghai
2014 First Australian store in Melbourne; first German store in Berlin (which also serves as a
global flagship store)
2015 First Belgian store in Antwerp; global flagship store on Michigan Avenue, Chicago
2016 Global flagship store in Orchard Central, Singapore; first Canadian store in Toronto
2017 First Spanish store in Barcelona
2018 First Swedish store in Stockholm; first Dutch store in Amsterdam; global flagship store in
Manila
2019 First Danish store in Copenhagen
2004, which later became an R&D center. That same year, FRL Korea Co. was
established as a joint venture with Lotte Shopping of South Korea to carry out
Uniqlo operations in the country. Then in 2005, the company acquired Aspesi Japan,
the sales subsidiary of the Italian clothing brand Aspesi. However, Uniqlo withdrew
from the [Aspesi] business in 2008.
Uniqlo also successively opened overseas stores as indicated in the following
Table 1.
Second, Fast Retailing also expanded significantly in Japan, first opening large-
scale stores in Shinsaibashi (Osaka) in 2004 (becoming a global flagship store 2010),
Ginza in 2005, Kobe Harborland in 2007, and in Ikebukuro’s Tobu department store
in 2011. It also opened a series of global flagship stores in Japan (beyond the
Shinsaibashi store in Osaka as noted above): the Ginza store in 2012; the Lee
Theater store (Kichijoji, Tokyo) in 2013; and “Uniqlo Osaka” in 2014. In addition,
global hotspot stores opened, such as: the BICQLO Shinjuku Station East Exit store
in 2012; the Ikebukuro Sunshine 60 Dori, Okachimachi Store and Kichijoji Store
in 2014.
Third, Uniqlo diversified its businesses, opening a women’s innerwear specialty
store in Ginza in 2005 (closed in 2009) and a children’s and baby specialty store,
Uniqlo Kids (closed in 2009). In 2007, Uniqlo opened a T-shirt specialty store,
UTSTORE HARAJUKU, in Harajuku, Tokyo. In 2017, Uniqlo refreshed and
relaunched its Japanese online store.
In 2006, Fast Retailing established the g.u. brand (now spelled G.U. or GU) that
operates the eponymous store specializing in low-priced casual wear. It opened the
first g.u. flagship store in Shinsaibashi in 2010 (and a Ginza store in 2012). It also
expanded overseas, in Shanghai in 2013, Taiwan in 2014, Hong Kong in 2017, and
South Korea in 2018.
Also in 2006, Fast Retailing formed a business alliance with Toray Industries
with the aim of creating a “strategic partnership.” In 2007 the alliance began working
on the HEATTECH campaign that became a great success.
Thus, Fast Retailing’s business continues to grow. Clearly, the largest factor in
the success has been Yanai’s skillful risk-taking and growth-oriented investments.
Masayoshi Son Before 2006
Among the works of business historians analyzing Masayoshi Son’s entrepreneurial

activities, Hiroaki Yamazaki’s article published in 2007 is especially insightful.10
The following discussion of Son’s activity through 2006 is based on that article.
Masayoshi Son was born in 1957 (Showa 32) in Tosu City, Saga Prefecture, the
second son of an ethnic Korean family in Japan. He entered Kurume University
Senior High School, one of the leading high schools in the area, but dropped out after
being fascinated by the atmosphere of the U.S. west coast which he visited for a
summer language study program during his first year in high school. After moving to
the U.S., Son passed the required high school graduation exam and completed
2 years of college before transferring to the Department of Economics at the
University of California, Berkeley in 1977.
While at Berkeley, Son engaged in several profitable businesses, which included
development of a voice-activated electronic translator and installations of Space
Invaders game machines around campus. In 1981, a year after graduating from
Berkeley and returning to Japan, he founded Japan Softbank, a PC software whole-
saler in Onojo City, Fukuoka Prefecture, with capital of 10 million yen. Hiroaki
Yamazaki discusses Masayoshi Son’s business activities from that time through
2006, dividing them into the following three phases:11
1. The foundational period from the establishment of Japan Softbank through
FY1993.
2. The period of active mergers and acquisitions between FY1994 and1999.
3. A period of transition “from an Internet conglomerate to comprehensive telecom
operator” between FY2000 and 2006.
10
Yamazaki, H. (2007). Hokoku 3: Son Masayoshi (Sofutobanku) no kigyoka katsudo (Report 3:
The entrepreneurial activity of Masayoshi Son (Softbank)). In Kyotsurondai: M&A, TOB nadono
hairisuku bunya de katsuyakushita kigyoka gunzo no jitsuzo to kyozo, Okabe Hiroshi, Shima
Tokuzo kara Son Masayoshi made (Common subject: The real and false Images of entrepreneurs
who performed well in high-risk areas, such as M&A and TOB—From Hiroshi Okabe and Tokuzo
Shima to Masayoshi Son), Kigyoka kenkyu daiyongo (Entrepreneurial studies), No. 4, pp. 96–108.
11
Ibid., pp. 97–107.
Masayoshi Son Before 2006 251
In the foundational phase, shortly after establishment, Japan Softbank moved to

Tokyo and signed exclusive contracts with Joshin Denki, the operator of Japan’s
largest PC store, and with Hudson, the largest software developer in Japan. By
signing exclusive deals with the top companies, both at the entry and exit points of
computer software distribution, Japan SoftBank was able to secure an overwhelm-
ingly dominant position in this field.12
Masayoshi Son ran into financial difficulties stemming from these deals but he
overcame the crisis with a loan from the Kojimachi branch of the Dai-Ichi Kangyo
Bank. The loan was made possible by the mediation of Tadashi Sasaki, a senior
managing director at Sharp, whom Son met through the development of a voice-
activated electronic translator.
In 1982 (Showa 57), Japan Softbank started a publishing business, with the
launch of a special interest magazine that showcased PCs and software by each
manufacturer. “Thus, the business of Japan Softbank began to develop based on two
pillars: the wholesale of PC software and the publication of the model-specific PC
magazine.”13
In 1989 (Heisei 1), Masayoshi Son met David A. Norman, then chairman of
Businessland, a rapidly growing U.S. company in the field of network equipment,
and established Businessland Japan Co. The following year, through an introduction
by Norman, Son met with Raymond Noorda, president of Novell. Novell had
developed an OS14 called Netware for local area networks15 and held a 65% market
share in the United States. With the cooperation of Fujitsu, Toshiba, Canon, Sony,
and NEC, Son established the Japanese branch of Novell. “Thus, in the new field of
network business, Son enlisted the cooperation of leading Japanese PC makers to
encourage America’s most prominent network operator to enter the Japanese market.
As a result, Japan SoftBank succeeded in swiftly securing a dominant position in this
field.”16 Based on this success, as the company aimed for global expansion, Japan
Softbank changed its name to Softbank Corp in 1990.
Phase 2 commenced in 1994 as SoftBank made its stock available on the over-
the-counter market. Having raised a large amount of capital, Masayoshi Son pursued
an active M&A strategy, acquiring Interop in 1994, the exhibition division of Ziff-
Davis Publishing, at that time the top U.S. computer magazine publisher. In 1995,
Son acquired Comdex and Ziff-Davis Publishing, the top two companies in the
exhibition industry. A year later, he acquired Kingston Technology, a leading
manufacturer of computer memory boards.
12
Ibid., p. 97.
13
Ibid., p. 98.
14
Operation System, the system software to manage computer control and operation.
15
Local Area Network, a network within a limited area.
16
Op. cit., Yamazaki, H. (2007), p. 98.
Thus, large, flashy M&A deals were completed, but all of them were then sold off in a short
period of time, so one has to say these deals as a whole ended in a failure, but during this
process, Son acquired a ‘golden egg’, which was Yahoo.17
Yahoo Inc. was an Internet information search company established in the U.S. in
1995. Son immediately decided to invest in Yahoo after hearing about the company
from Eric Hippeau of Ziff-Davis Publishing. When Yahoo entered the Japanese
market in 1996, Son took control of a 60% stake in the newly established Yahoo
Japan.
SoftBank, which went public on the First Section of the Tokyo Stock Exchange
(TSE) in 1998, established NASDAQ Japan Planning in the same year as a 50–50
joint venture with the National Association of Securities Dealers (NASD) of the
United States. “This was an attempt to support venture businesses in line with the
trend of fostering IT ventures, which had been going on in parallel with the surge of
IT-related stock 18 since FY1998. The company formed a business alliance with the
Osaka Securities Exchange (OSE) and opened the Nasdaq Japan market in June
2000.”19 However, due in part to competition with Mothers, a market established in
1999 by the Tokyo Stock Exchange for startups, Nasdaq Japan Inc. was dissolved in
2002. The trading platform itself survived after it was reorganized as the Osaka
Securities Exchange Hercules market for startups.
Phase 3 began as Softbank’s stock price, which had soared during 1999, began to
plummet at the beginning of 2000. This sharp decline forced Masayoshi Son to
restructure and clarify his management policies. SoftBank’s annual securities report
for FY2000 included a new section entitled “Management Policy and Overview of
the SoftBank Group.” It emphasized that “The Group will invest all of its managerial
resources in the Internet field, particularly broadband-related businesses;20 as a
leader in the Internet business, the Group will strive to develop its venture business
infrastructure and carefully make investments through venture capital; and to do this
efficiently, the Group will introduce a ‘group structure consisting of three layers—a
pure holding company, business management companies by segment, and group
businesses.’”21
In line with this policy, Son aggressively pursued broadband-related business
initiatives and pushed forward on the path to becoming a comprehensive telecom
operator. In 2000, SoftBank became the largest shareholder of Nippon Credit Bank
(later, Aozora Bank)—temporarily nationalized to dispose of bad loans—by provid-
ing 48.9% of the bank’s 79.5 billion yen capital. In 2003, SoftBank sold this stake to
Cerberus, a U.S. investment fund, for 101.1 billion yen. “SoftBank earned a net gain
of 50 billion yen from the sale and invested most of the proceeds into its broadband
17
Ibid., p. 100.
18
Information Technology.
19
20
The line or service that provides high-speed telecommunications in a wide area.
21
Masayoshi Son Before 2006 253
business.”22 These included the launch of the comprehensive broadband service

“Yahoo BB” in 2001 and of the new comprehensive fiber-optic broadband service
“Yahoo! BB Hikari” in 2004.
SoftBank entered the fixed-line business with the acquisition in 2004 of Nippon
Telecom and made a full-scale entry into the mobile telecommunications business
with the 2006 acquisition of Vodafone’s Japanese subsidiary. “With this acquisition,
SoftBank was swiftly obtained the status of the third largest mobile carrier [in Japan]
behind NTT (NTT East and NTT West) and NTT DoCoMo.” 23
By pressing ahead on its path as a comprehensive telecommunications operator,
SoftBank’s corporate size grew rapidly.24 SoftBank’s total assets (on a consolidated
basis), around 1 trillion yen at the end of FY2002, reached 4.191 trillion yen by the
end of 2006.25
Hiroaki Yamazaki provides the following summary of Son’s meteoric rise:
The most impressive aspects of Masayoshi Son’s entrepreneurial activities are the speed of
his decision-making and his uniquely strong negotiating skills to deal with the big names in
the business community. This was especially evident in the series of large-scale M&As
carried out after FY1994.26
. . . .Most of these deals did not come to fruition, and he was forced to withdraw or
liquidate assets after a relatively short period of time. For this reason, his actions were often
characterized as seeking short-term capital gain, and because of that he was often labeled as
an unscrupulous businessman.
However, a dispassionate examination of his actions since the founding of Japan
Softbank shows that Son has been consistent in his approach to pursuing IT infrastructure
as his business domain, finding business opportunities in it, and boldly taking on challenges.
Although many large M&As ended in failure, his discovery of the ‘golden egg’ Yahoo, and
the success of the ADSL27 (broadband infrastructure) business, should be attributed to his
speedy decision-making and boldness of action. Furthermore, his actions helped to spur the
IT revolution in Japan by exerting strong competitive pressure on the established economic
order, as seen in the emergence of new securities markets (TSE Mothers and OSE Hercules),
the promotion of broadband penetration, and the breaking up of the two-company oligopoly
in the mobile telecommunication business. Masayoshi Son should be recognized as a fierce
innovator who altered the economic order, acting boldly without fear of risk.28
Thus, Yamazaki dismisses the view among some observers of Masayoshi Son as
an “unscrupulous businessman” and highly praises him as a fierce innovator who
altered the economic order, acting on business opportunities without fearing risk.
Yamazaki highlights Son’s characteristics, such as his unwavering consistency in the
22
Ibid., p. 104.
23
Ibid., pp. 104–105.
24
Softbank bought Fukuoka Daiei Hawks, a professional baseball team, in 2004, altering the name
to Fukuoka Softbank Hawks.
25
26
Ibid., p. 107.
27
Asymmetric Digital Subscriber Line—a high-speed, large-capacity telecommunication service to
access the Internet by use of an analog telephone line.
28
business domain as well as his strength in the “speed of decision-making and

boldness of action.”
Masayoshi Son After 2007
Son’s entrepreneurial activities, characterized by his bold approach, continued

unabated after 2007, as can be seen on the SoftBank Group website.29
First, he pursued acquisitions and investments on a global scale. Highlights
included turning Sprint Nextel Corporation of the United States into a subsidiary
between 2012 and 2013 and acquiring ARM Holdings plc of the United Kingdom in
2016. In addition, SoftBank carried out acquisitions and investments between 2013
and 2019 in countries including Finland, the United States, Indonesia, India, Singa-
pore, China, South Korea, Canada, and Sweden.
Second, Son also actively pursued the growth of domestic business operations. In
the telecommunications business he launched the “White Plan” in 2007, a new
pricing plan for mobile communication services that engaged in fierce competition
with NTT DoCoMo and KDDI. In 2013, SoftBank turned the PHS (personal handy-
phone system) service company WILLCOM into a subsidiary, and a year later,
introduced the world’s first emotion-recognizing personal robot, Pepper. In 2018 the
company co-founded MONET Technologies Inc. with Toyota Motor to engage in
next-generation mobility services.
Third, he focused on the promotion of renewable energy. In 2011, he established
SB Energy to popularize and expand the use of renewable energy, and in 2013 he
established Bloom Energy Japan to supply electricity through distributed power
sources that were both clean and stable. Two years later, SoftBank won a bid for a
mega-solar power project in India with an output of 350,000 kW. In 2016, the
company signed a memorandum of understanding with the State Grid Corporation of
China (SGCC), Korea Electric Power Corporation (KEPCO), and [Russia’s] Rosseti
on research and planning to promote the construction of an international
interconnected power grid enabling the use of renewable energy over a wide area.
Meanwhile, in July 2015 the original Softbank changed its name to Softbank
Group, and Softbank Mobile changed its name to simply Softbank. SoftBank
(formerly SoftBank Mobile) thus became a subsidiary of SoftBank Group, going
public on the First Section of the Tokyo Stock Exchange in 2018. Thus, Son
continued to “boldly act on business opportunities without fearing risk” even after
2007. Like Tadashi Yanai, Masayoshi Son was, and continues to be, an exceptional
manager in Japan’s post-1990s business world where the “investment restraint
mechanism” has become pervasive.
29
The website of SoftBank Group Corp. Kigyojoho enkaku (Company information and history).
Index (items, people’s names, company names, and organizational names, etc.). https://www.
softbank.jp/corp/aboutus/profile/history.
Masayoshi Son After 2007 255
parts of it.
Discussion Point 4: Why Did Japan’s
Economy Slow Down? ICT Revolution
and “Disruptive Innovation”
Abstract This section explains the challenge facing Japanese companies after 1990,
caught between two types of innovations: breakthrough and disruptive. Before the IT
revolution, the slow pace of breakthrough innovation enabled latecomers to surpass
the original innovators through incremental innovation. However, with the ICT
revolution in the 1990s, breakthrough innovators gained significant “first mover”
advantages, often leading to “a winner-takes-all” outcome in which Japanese com-
panies found themselves at a competitive disadvantage. Discussion of Christensen’s
“disruptive innovation” theory is incorporated to show how Japanese companies are
caught between breakthrough innovation from first-mover countries and disruptive
innovation from latecomer countries.
Establishment of “First Mover Advantage” Through the ICT

Revolution
In this Discussion Point section, we will examine the stagnation of the Japanese
economy and Japanese companies after the 1990s from the perspective of innova-
tion. We address the third question posed in the Introduction: “Why has the Japanese
economy, after a long period of relatively high growth, stalled since the 1990s?” The
concise answer is that Japanese companies were caught between two types of
innovation.
When Japanese-style management was functioning effectively, Japanese compa-
nies excelled at incremental innovation (cumulative and continuous innovation), as
opposed to breakthrough innovation. The success of Japanese companies in incre-
mental innovation was not limited to the period of rapid economic growth after
World War II, when Japanese-style management began to function in earnest, but
was common throughout Japan’s long period of growth from around World War I
through the 1980s.
In pursuing incremental innovation, Japanese firms adopted the strategy of
“latecomer advantage,” improving products developed by first movers and ulti-
mately securing a larger market share. The “latecomer advantage” strategy worked
© Kreab K.K. 2023 257

258 Discussion Point 4: Why Did Japan’s Economy Slow Down? ICT Revolution. . .
because the pace of technological innovation was relatively slow and latecomers had
ample time to catch up with the first movers.
However, since the 1990s, the ICT (Information and Communication Technol-
ogy) revolution has ushered in an era of “first mover advantage,” in which the first
company to offer a breakthrough innovation quickly gains an overwhelming market
share. Once the first mover of a groundbreaking innovation secures the de facto
industry standard, it develops a competitive advantage over companies that do not
participate in the standards, excluding them from the network. As a result, “a winner
takes all” situation came to be widely observed, with the first movers capturing most
of the profits.
Thus, Japanese firms that had excelled at incremental innovation found them-
selves at a competitive disadvantage vis-à-vis the first mover firms that led the way in
breakthrough innovation. The effectiveness of the “latecomer advantage” strategy
was not eliminated, but became much more limited.
“Disruptive Innovation” in the Innovator’s Dilemma by

Clayton M. Christensen
A second factor was “disruptive innovation,” illustrated by Clayton M. Christensen

in his acclaimed work “The Innovator’s Dilemma”. To be clear, I repeat the
explanation offered in the “Introduction” of this book.
“Disruptive innovation” makes existing products obsolete and creates entirely
new value, as opposed to incremental innovation that strives to continuously
improve an existing product. Every so often, a low-priced new product is launched
in a market filled with conventional products that are undergoing continuous quality
improvement through incremental innovation. These newly introduced products are
low priced but their quality is so poor that initially they are not taken seriously.
However, on rare occasions the quality of such new products may reach a level that
meets the minimum needs of a critical mass of the market. At that point, the existing,
conventional products still possess higher quality and price. However, once the new
product (i.e., the disruptor) meets the consumers’ minimum needs, price competi-
tiveness comes into play and the newcomer rapidly gains market share. This is when
existing products experience damaging results—the mechanism that Christensen
calls “disruptive innovation.” In contrast to incremental innovation, “disruptive
innovation” destroys the value of existing products and creates entirely new value.
Recently, we often hear of phenomena such as the “rapid commoditization of value-
added products (price destruction)” and the “Galapagosization of Japanese prod-
ucts.” These are deeply related to “disruptive innovation.”
Many of the sources of “first mover advantage” through breakthrough innovation
discussed here are located on the west coast of the United States, including Silicon
Valley. On the other hand, the leaders of “disruptive innovation” are often compa-
nies from countries and regions such as South Korea, Taiwan, and China. As of
“The Innovator’s Solution” and Answer to the Remaining Question 259
2019, Japanese firms have been struggling, caught between breakthrough innovation
from first-mover countries and disruptive innovation from latecomer countries and
regions.
“The Innovator’s Solution” and Answer to the Remaining

Question
It is worth noting that in his book co-authored with Michael E. Raynor, “The
Innovator’s Solution,” (the sequel to “The Innovator’s Dilemma”), Christensen
expresses the view that “disruptive innovation” was frequently observed in Japan
from the 1960s through 1980s. Noting that disruptive innovation was the funda-
mental engine of Japan’s economic miracle of the 1960s, 1970s, and 1980s,
Christensen, along with two co-authors, offered the following observation in a
Foreign Affairs article (Foreign Affairs 80, no. 2 (March–April 2001) pp. 80–95):
Like other companies, these disruptors – Sony, Toyota, Nippon Steel, Canon, Seiko, Honda
and others – have soared to the high end, now producing some of the world’s highest-quality
products in their respective markets. Like the American and European companies that they
disrupted, Japan’s giants are now stuck at the high end of their markets where there is no
growth. The reason America’s economy did not stagnate for an extended period after its
leading companies got pinned to the high end was that people could leave those companies,
pick up venture capital on the way down, and start new waves of disruptive growth. Japan’s
economy, in contrast, lacks the labor market mobility and the venture capital infrastructure to
enable this. Hence, Japan played the disruptive game once and profited handsomely. But it is
stuck (p. 71, footnote).
According to “The Innovator’s Solution,” “disruptive innovation” can originate

at the low end of an established market or in an entirely new market. It can result in
creating a new customer base by providing a simple, easy-to-use, and inexpensive
product to existing consumers or by providing an affordable, easy-to-use product to
a completely new group of consumers. In some cases, a new entrant might take away
the incumbent leader’s market share at once. As Christensen notes, “Whereas the
current leaders of the industry almost always triumph in battles of sustaining
innovation, successful disruptions have been launched most often by entrant com-
panies” (pp. 34–35).
Based on this argument, Japan’s lack of labor market mobility and venture capital
infrastructure have been inhibiting a vigorous turnover of leading companies, a
turnover that regularly occurs in the United States through continuous “disruptive
innovation.” In Japan there aren’t enough new entrants that grow rapidly and rise to
the top of the market. This essential point accurately explains some of the problems
faced by the Japanese economy.
One question remains unanswered however: if “disruptive innovation” was
actively occurring in Japan until the 1980s, why has it stagnated since the 1990s?
One factor is that the leading companies themselves, rather than new entrants,
were responsible for disruptive innovation from the 1960s through the 1980s.
260 Discussion Point 4: Why Did Japan’s Economy Slow Down? ICT Revolution. . .
Therefore the argument that “existing leading companies are not strong on disruptive
innovation” is not a sufficient explanation. We need to understand what happened to
Japan’s once-innovative, leading companies during the 1990s, during the so-called
Lost Decade.
The answer can be found in the emergence of the “investment restraint mecha-
nism” that resulted from dysfunction in the Japanese-style management system,
highlighted in Overview 4 at the beginning of Part III. To restore the vitality of
Japanese companies, to recreate an environment conducive to “disruptive innova-
tion” and to achieve breakthrough innovation that will enable Japan to gain “first
mover advantage,” we must revive the Japanese-style management system and
overcome the “investment restraint mechanism.” Kazuo Inamori, Toshifumi Suzuki,
Tadashi Yanai, and Masayoshi Son, were innovative entrepreneurs who continued to
pursue sound growth strategies without getting caught in the “investment restraint
mechanism” even in the post-1990s Japan. Overall, however, they were exceptional
cases.
parts of it.
Conclusion: Reviving Innovation—
Requirements for the “Two-Front
Operation”
Abstract In this section, the author offers recommendations for resolving Japan’s
stagnation over the past three decades. He calls for a two-pronged approach to
simultaneously capture the expanding low-end market and the very profitable
high-end market. To revive innovation and restore vitality among Japanese compa-
nies, the author emphasizes the importance of establishing a new Japanese-style
management system and overcoming the “investment restraint mechanism”
observed among many firms.
Summary of This Book
The aim of this book was to clarify the historical flow of Japan’s economic
development, focusing on the changing nature of innovation. In doing so, I set
forth three questions to be resolved. Parts I, II, and III provided answers to these
questions.
Part I explored the question “Why was it possible for Japan’s economy to attain a
growth path so early?” Outside Europe and the United States, the Japanese
economy’s takeoff was the earliest among the late developers; the contributing
factor was breakthrough innovation originating domestically.
The first half of Part I discusses Zen’emon Konoike, Takatoshi Mitsui, and
Genzaemon Nakai, all active during the Edo period. At that time, Japan was cut
off from the rest of the world by its isolationist policy, and innovation in Japan can
thus be seen as “world” innovation. In this sense, the Edo period innovators can be
regarded as breakthrough innovators who accomplished “world firsts.”
In the second half of Part I, we looked at six innovative entrepreneurs: Hikojiro
Nakamigawa, a salaried manager; Yataro Iwasaki, Yanosuke Iwasaki, Zenjiro
Yasuda, and Soichiro Asano, owner-managers; and Eiichi Shibusawa, an investor-
manager. Their business innovations were essentially incremental. However, the
unique system created by the combination of these innovations, consisting of
mutually facilitative collaboration among the salaried, owner, and investor man-
agers, served as the driving force that made Japan the first to accomplish industri-
alization among late developers. Thus, these entrepreneurs collectively realized
© Kreab K.K. 2023 261

262 Conclusion: Reviving Innovation—Requirements for the “Two-Front. . .
breakthrough innovation of global historical significance, which led to the “first

industrialization among late starter nations.”
With sporadic cases of breakthrough innovation during the Edo period as pre-
conditions, and with the series of comprehensive breakthrough innovations between
the opening of ports at the end of the Edo era and the post Russo-Japanese War years
as direct impetus, Japan accomplished the first successful industrialization among
late developers.
Part II examined the question: “How was it possible for the Japanese economy,
once on a growth path, to achieve such high growth over a long period of time, a feat
rarely seen in world history?” The answer: “As a result of incremental innovation
and led by domestic demand, Japan achieved relatively high growth over a long
period.”
Unlike the case of other East Asian countries and regions, the Japanese economy
continued to experience relatively high growth driven by domestic demand from the
1910s through the 1980s. Expanding domestic demand was driven by an ongoing
consumer revolution accompanied by the Westernization of lifestyles and active
capital investment in the private sector. The activities of Ichizo Kobayashi,
Saburosuke Suzuki II, Kiichiro Toyoda, Yoshisuke Aikawa, Sazo Idemitsu,
Konosuke Matsushita, Masaru Ibuka, Akio Morita, Soichiro Honda, and Takeo
Fujisawa, discussed in Part II, were closely related to the consumer revolution.
Meanwhile, the activities of Yasuzaemon Matsunaga, Shitagau Noguchi, Yataro
Nishiyama, and Toshio Doko, were deeply tied to the promotion of capital invest-
ment in the private sector.
Overall, these leaders produced incremental innovation symbolized by the word
“kaizen” or “improvement.” A series of innovative entrepreneurial actions enhanced
the organizational capacity of Japanese companies and enabled the relatively high
growth of the Japanese economy over the long term.
Part III examined the question “Why did Japan’s long period of relatively high
economic growth come to an abrupt end with the burst of the economic bubble in the
early 1990s, and why has the Japanese economy continued to stall to this day?” The
answer can be stated as “Japanese companies were caught between two types of
innovation.”
First, breakthrough innovations deriving from the ICT revolution ushered in the
era of “first mover advantage.” The strategy of “latecomer advantage” based on
incremental innovation that had been the strength of Japanese firms, lost its effec-
tiveness in the era of “first mover advantage.” First movers establish the de facto
industry standard and capture most of the profits.
Second, “disruptive innovation,” described by Christensen in his work “The
Innovator’s Dilemma,” explains a series of recent phenomena, such as the rapid
commoditization of value-added products (price destruction) and the so-called
Galapagosization of Japanese products. Japanese companies are struggling, caught
between breakthrough innovation originating in developed countries and disruptive
innovation originating in less developed countries and regions. This is the answer to
the question presented in Part III.
Ways to Revive Innovation 263
Ways to Revive Innovation
Japanese companies must confront breakthrough innovation from developed coun-

tries and disruptive innovation from less developed countries and regions. They must
adopt an appropriate growth strategy, carrying out a “two-front operation” to
simultaneously capture the expanding low-end market and the highly profitable
high-end market.
Japan’s location in East Asia is extremely favorable for the country to implement
such a “two-front operation.” East Asia has the potential to contribute to the growth
strategies of Japanese companies in in two ways: (a) it can expand market size,
particularly for low-end products, and (b) it can serve as a development and
production base for the high-end market. The geographical proximity of Japan,
Korea, China, and Taiwan lowers the cost of moving managerial resources, includ-
ing human resources. It also enables competitiveness of the entire supply chain
through optimal locations in each country and region. If Japan utilizes these condi-
tions, its companies can take advantage of the East Asian economy’s buoyancy and
return to the growth path.
Even today, Japanese companies face two frontiers: (1) emerging markets that are
continuously growing, and (2) the domestic market, undergoing structural change.
Therefore, Japanese companies can still grow if they adopt appropriate strategies to
penetrate emerging markets or more deeply cultivate the domestic market (for
example, by combining the manufacturing and service industries; by creating an
alliance between agriculture, commerce, and manufacturing industries; and engag-
ing in urban planning that is focused on healthcare and welfare). Achieving this
would also help create new jobs in Japan.
To revive Japan’s economy, individual companies must clarify their growth
strategies and align shareholder interest (higher share prices) with employee interest
(better compensation) over the medium to long term. If appropriate investments that
result in corporate growth can simultaneously result in higher share prices and better
compensation, shareholder interest and employee interest will no longer be at odds.
Some believe that it is difficult for companies to pursue growth strategies in Japan
whose population has already peaked. However, it is possible for companies to
pursue growth strategies if they target the global market or if they deepen their
cultivation of the domestic market in response to structural changes in Japan.
Aligning shareholder interest and employee interests over the medium to long
term means rebuilding Japanese-style management, but not through a simple return
to its original state. While maintaining long-term employment, thus ensuring a sense
of security for employees, it is also necessary to undertake a fundamental revision of
the seniority system by introducing a meritocracy to motivate workers. Japanese-
style management must be transformed from “old-style Japanese management,” in
which long-term employment and seniority coexisted, to “new-style Japanese man-
agement,” emphasizing long-term employment but not seniority. When manager-
centric companies adopt the “new Japanese-style management” and make
264 Conclusion: Reviving Innovation—Requirements for the ”Two-Front. . .
appropriate investments based on a long-term vision that develops a growth strategy

cultivating the two frontiers, the Japanese economy will make a true comeback.
To that end, the urgent task is to overcome the “investment restraint mechanism”
that has led to a dysfunctional Japanese-style management system. To restore the
vitality of Japanese companies, to recreate an environment in Japan that is conducive
to a series of “disruptive innovations,” and to realize breakthrough innovation that
will enable Japan to gain “first mover advantage,” it is essential to establish a “new
Japanese-style management” and overcome the “investment restraint mechanism.”
Kazuo Inamori, Toshifumi Suzuki, Tadashi Yanai, and Masayoshi Son, were excep-
tionally innovative individuals who avoided the “investment restraint mechanism”
trap even in the post-bubble years since the 1990s, and who continued to implement
sound growth strategies. When entrepreneurs like them cease to be the “exceptional”
cases, the revival of innovation in Japan will have been accomplished.
parts of it.
Notes About the Translation
In the main text, Japanese names are written as first name and then surname, unless it
is part of a translated original work or bibliographical reference, in which case the
original order of surname, then first name, is retained, as per Japanese style. Names
in the index are indicated in both the original Japanese style (surname, first name) as
well as in the Westernized style (first name, surname) inside brackets.
Hepburn-style romanization (Hebon-shiki rōmaji) has been used throughout the
book, unless a word is part of a book or article title with Kunrei-shiki romaji.
© Kreab K.K. 2023 265

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Name Index
A F
Aikawa, Yoshisuke (Yoshisuke Aikawa), 97, Fujisawa, Takeo (Takeo Fujisawa), 97,
148, 159, 217, 262 181–198, 262
Akiyama, Takichi (Takichi Akiyama), 122 Fujita, Denzaburo (Denzaburo Fujita), 79
Amenomiya, Keijiro (Keijiro Amenomiya), 68, Fujiwara, Ginjiro (Ginjiro Fujiwara), 49
70 Fujiyama, Raita (Raita Fujiyama), 49, 50
Aoyama, Masaji (Masaji Aoyama), 226 Fukuzawa, Hyakusuke (Hyakusuke Fukuzawa),
Asabuki, Eiichi (Eiichi Asabuki), 60 46
Asada, Masabumi (Masabumi Asada), 59 Fukuzawa, Momosuke (Momosuke Fukuzawa),
Asano, Soichiro (Soichiro Asano), 40, 63–70, 109, 113, 117
75–77, 87, 88, 261 Fukuzawa, Yukichi (Yukichi Fukuzawa), 46,
Asano, Toshimitsu (Toshimitsu Asano), 54, 68 55, 58, 60, 109
Asawa, Saburo (Saburo Asawa), 166 Furukawa, Ichibei (Ichibei Furukawa), 45, 77,
Ashihara, Yoshishige (Yoshishige Ashihara), 87, 142
106, 107, 116, 117
G
C Gerschenkron, Alexander (Alexander
Carnegie, Andrew (Andrew Carnegie), 142 Gerschenkron), 85
Christensen, Clayton M. (Clayton Godai, Tomoatsu (Tomoatsu Godai), 75, 79
M. Christensen), 1–4, 258–259, 262
H
D Harada, Chinji (Chinji Harada), 59
Deyon, Pierre (Pierre Deyon), 37 Hasegawa, Yasuhiko (Yasuhiko Hasegawa),
Dodge, Joseph M. (Joseph M. Dodge), 132 246, 247
Doi, Michio (Michio Doi), 79 Hashimoto, Juro (Juro Hashimoto), 45, 95, 165,
Doko, Kikujiro (Kikujiro Doko), 201 182
Doko, Tomi (Tomi Doko), 201 Hatano, Shogoro (Shogoro Hatano), 49
Doko, Toshio (Toshio Doko), 97, 201–211, Hayakawa, Tokuji (Tokuji Hayakawa), 181
217, 262 Hayashi, Shuji (Shuji Hayashi), 170, 236
Hibi, Osuke (Osuke Hibi), 49
Hida, Jutaro (Jutaro Hida), 150
E Hiraga, Satoshi (Satoshi Hiraga), 49
Egashira, Tsuneharu (Tsuneharu Egashira), 29 Hirakawa, Hitoshi (Hitoshi Hirakawa), 214
Eguchi, Sadae (Sadae Eguchi), 59 Hita, Jutaro (Jutaro Hita), 150
© Kreab K.K. 2023 281

282 Name Index
Honda, Soichiro (Soichiro Honda), 97, 173, Kimura, Masato (Masato Kimura), 79, 81
181–198, 262 Kirishima, Shuichi (Shuichi Kirishima), 59
Hori, Shin (Shin Hori), 107 Kirzner, Israel M. (Israel M. Kirzner), 1–4
Kobayashi, Ichizo (Ichizo Kobayashi), 49, 97,
99–107, 217, 262
I Kodama, Ichizo (Ichizo Kodama), 129
Ibuka, Masaru (Masaru Ibuka), 97, 181–198, Kondo, Renpei (Renpei Kondo), 59
262 Konoe, Fumimaro (Fumimaro Konoe), 105
Ichimada, Hisato (Hisato Ichimada), 162 Konoike, Masashige (Masashige Koniike), 11,
Ide, Daiijiro (Daijiro Ide), 114, 115, 117 13, 16
Idemitsu, Sazo (Sazo Idemitsu), 97, 148–159, Konoike, Munetoshi (Munetoshi Konoike), 12,
161, 162, 217, 262 14, 16
Iida, Makoto (Makoto Iida), 232 Konoike, Yukimune (Yukimune Konoike),
Ikeda, Kikunae (Kikunae Ikeda), 120–121, 123, 11–14, 16
217 Konoike, Yukitomi (Yukitomi Konoike), 16
Ikeda, Shigeaki (Shigeaki Ikeda), 49 Konoike, Zen’emon (Zen’emon Konoike), 8,
Ikeo, Yoshizo (Yoshizo Ikeo), 107, 115 11–16, 33, 88, 261
Inamori, Kazuo (Kazuo Inamori), 224–234,
238, 247, 260, 264
Inoue, Junnosuke (Junnosuke Inoue), 94 L
Inoue, Kaoru (Kaoru Inoue), 46, 142, 143 Lee, Mihwa (Mihwa Lee), 241
Inukai, Tsuyoshi (Tsuyoshi Inukai), 95
Ishibashi, Shojiro (Shojiro Ishibashi), 181
Ishikawa, Teijiro (Teijiro Ishikawa), 123 M
Ishizaka, Taizo (Taizo Ishizaka), 207 Maruta, Hidemi (Hidemi Maruta), 59
Isono, Hakaru (Hakaru Isono), 60 Masuda, Takashi (Takashi Masuda), 47
Itami, Hiroyuki (Hiroyuki Itami), 161, 163, Matsukata, Masayoshi (Masayoshi Matsukata),
167, 168, 182, 201, 226 39, 47
Ito, Osamu (Osamu Ito), 164 Matsunaga, Yasuzaemon (Yasuzaemon
Iue, Toshio (Toshio Iue), 181 Matsunaga), 97, 99, 107, 109–118, 139,
Iwade, Sobei (Sobei Iwade), 70 166, 217, 262
Iwanaga, Shoichi (Shoichi Iwanaga), 59 Matsushita, Ichirozaemon (Ichirozaemon
Iwasaki, Hisaya (Hisaya Iwasaki), 57 Matsushita), 67
Iwasaki, Yanosuke (Yanosuke Iwasaki), 40, 44, Matsushita, Konosuke (Konosuke Matsushita),
45, 50, 53–61, 77, 87, 261 97, 169–179, 217, 229, 262
Iwasaki, Yataro (Yataro Iwasaki), 40, 50, Mendels, Franklin (Franklin Mendels), 37
53–61, 75, 76, 88, 261 Mikimoto, Kokichi (Kokichi Mikimoto), 119
Mimura, Kunpei (Kunpei Mimura), 59
Minomura, Rizaemon (Rizaemon Minomura),
K 46
Kagono, Tadao (Tadao Kagono), 163, 225, 226, Mitarai, Takeshi (Takeshi Mitarai), 181
228, 230 Mitsui, Shigetoshi (Shigetoshi Mitsui), 20
Kashiyama, Junzo (Junzo Kashiyama), 237 Mitsui, Shuho (Shuho Mitsui), 19, 20
Kasuya, Makoto (Makoto Kasuya), 23, 43, 47, Mitsui, Takaharu (Takaharu Mitsui), 21
48, 50 Mitsui, Takahira (Takahira Mitsui), 21, 23
Kato, Takaaki (Takaaki Kato), 60 Mitsui, Takatomi (Takatomi Mitsui), 21
Kawai, Nobutaro (Nobutaro Kawai), 205 Mitsui, Takatoshi (Takatoshi Mitsui), 8, 19–24,
Kawasaki, Hachiemon (Hachiemon Kawasaki), 33, 88, 261
67, 124, 125 Mitsui, Takayasu (Takayasu Mitsui), 19
Keynes, John M. (John M. Keynes), 95 Mitsui, Toshitsugu (Toshitsugu Mitsui), 20, 21
Kikawada, Kazutaka (Kazutaka Kikawada), Miwa, Ryoichi (Ryoichi Miwa), 38, 53, 94
116, 117 Miyake, Hiizu (Hiizu Miyake), 120
Kimura, Kusuyata (Kusuyata Kimura), 59 Miyaki, Otoya (Otoya Miyaki), 227
Name Index 283
Miyamoto, Matao (Matao Miyamoto), 7, O

12–16, 20, 23, 25, 33–34, 54, 68, 73, 78, Oda, Nobunaga (Nobunaga Oda), 19
80, 86, 96, 163, 226, 230 Odaka, Atsutada (Atsutada Odaka), 73
Mizuhara, Masamichi (Masamichi Mizuhara), Ogawa, Susumu (Susumu Ogawa), 242
20, 25–31 Ogawa, Zenkichi (Zenkichi Ogawa), 59
Mizutani, Rokuro (Rokuro Mizutani), 59 Ōkochi, Masatoshi (Masatoshi Okochi), 137
Mori, Nobuteru (Nobuteru Mori), 137 Oku, Saburobei (Saburobei Oku), 70
Morikawa, Hidemasa (Hidemasa Morikawa), Okuda, Masaka (Masaka Okuda), 79
43, 44, 48, 49, 53, 58, 61, 68, 85, 139, Ōkuma, Shigenobu (Shigenobu Ōkuma), 39, 54
143, 166, 171, 191, 196 Okumura, Kiwao (Kiwao Okumura), 115
Morita, Akio (Akio Morita), 97, 181–198, 232, Ōkura, Kihachiro (Kihachiro Ōkura), 70
262 Ōmori, Hiroshi (Hiroshi Ōmori), 113, 175, 179
Murakami, Tei (Tei Murakami), 49 Ōmori, Shosoku (Shosoku Ōmori), 166
Muto, Sanji (Sanji Muto), 49 Ōno, Taiichi (Taiichi Ōno), 134
Mutsuoka, Shuzo (Shuzo Mutsuoka), 206 Ōtagaki, Shiro (Shiro Ōtagaki), 106, 107
N P
Nagasawa, Yasuaki (Yasuaki Nagasawa), Perry, Matthew C. (Matthew C. Perry), 38, 96
54–58, 68 Piketty, Thomas (Thomas Piketty), 128
Nakagawa, Keiichiro (Keiichiro Nakagawa),
53, 67, 68, 86, 143, 191, 196
Nakai, Fumi (Fumi Nakai), 31 R
Nakai, Genzaburo (Genzaburo Nakai), 31 Raynor, Michael E. (Michael E. Raynor), 259
Nakai, Genzaemon (Genzaemon Nakai), 7, 8,
25–31, 33, 88, 261
Nakai, Ichizaemon (Ichizaemon Nakai), 31 S
Nakai, Mitsuharu (Mituharu Nakai), 27 Saji, Keizo (Keizo Saji), 181
Nakai, Mitsuhiro (Mitsuhiro Nakai), 28 Sakudo, Yotaro (Yotaro Sakudo), 20, 25, 26
Nakai, Mitsumasa (Mitsumasa Nakai), 28, 31 Sasaki, Tadashi (Tadashi Sasaki), 251
Nakai, Mitsumoto (Mitsumoto Nakai), 28 Schumpeter, Joseph A. (Joseph
Nakai, Mitsutada (Mitsutada Nakai), 28 A. Schumpeter), 1–4, 25, 146, 147
Nakai, Mitsutake (Mitsutake Nakai), 27, 28, 31 Semmoto, Sachio (Sachio Semmoto), 232
Nakai, Mitsutomo (Mitsutomo Nakai), 31 Seoka, Makoto (Makoto Seoka), 19, 20, 25
Nakai, Mitsuyasu (Mitsuyasu Nakai), 28 Shibusawa, Eiichi (Eiichi Shibusawa), 40, 55,
Nakai, Riyo (Riyo Nakai), 31 69, 70, 73–83, 87, 88, 229, 261
Nakai, Seijiemon Takenari (Seijiemon Takenari Shidehara, Kijuro (Kijuro Shidehara), 105
Nakai), 31 Shigeno, Yasutsugu (Yasutsugu Shigeno), 55
Nakamigawa, En (En Nakamigawa), 46 Shimada, Masakazu (Masakazu Shimada), 66,
Nakamigawa, Hikojiro (Hikojiro 73, 75, 77, 78
Nakamigawa), 43–51 Shimamoto, Minoru (Minoru Shimamoto), 226,
Nakamura, Kiyoshi (Kiyoshi Nakamura), 171, 227, 229
174–179, 195 Shinto, Hisashi (Hisashi Shinto), 232
Nakamura, Seishi (Seishi Nakamura), 48, Sho, Seijiro (Seijiro Sho), 59
139–141 Shoda, Heigoro (Heigoro Shoda), 56, 59–61
Nakano, Tomonori (Tomonori Nakano), 137 Son, Masayoshi (Masayoshi Son), 238, 249,
Nakauchi, Isao (Isao Nakauchi), 236 264
Nanbu, Kyugo (Kyugo Nanbu), 59 Suehiro, Akira (Akira Suehiro), 213–215
Nishikawa, Noboru (Noboru Nishikawa), 15 Suenobu, Michinari (Michinari Suenobu), 59
Nishiyama, Yataro (Yataro Nishiyama), 97, Sugiyama, Kazuo (Kazuo Sugiyama), 66, 67,
161, 217, 262 139
Noguchi, Shitagau (Shitagau Noguchi), 97, Suzuki, Chuji (Chuji Suzuki), 121, 125
124, 137–148, 159, 217, 262 Suzuki, Naka (Naka Suzuki), 122
284 Name Index
Suzuki, Saburo (Saburo Suzuki), 121, 125 Uemura, Masahiro (Masahiro Uemura), 22
Suzuki, Saburosuke, II (Saburosuke Suzuki II), Ugaki, Kazushige (Kazushige Ugaki), 141
97, 119–125, 217, 262 Uryu, Shin (Shin Uryu), 59
Suzuki, Teru (Teru Suzuki), 122 Ushio, Jiro (Jiro Ushio), 232
Suzuki, Tokita (Tokita Suzuki), 189
Suzuki, Toshifumi (Toshifumi Suzuki), 224,
235–242, 247, 264 W
Suzuki, Umeshiro (Umeshiro Suzuki), 49 Wada, Kazuo (Kazuo Wada), 127, 128,
130–132, 134
Wada, Toyoji (Toyoji Wada), 49
T Wheeler, Foster (Foster Wheeler), 205
Takahashi, Korekiyo (Korekiyo Takahashi), 95
Takaoka, Mika (Mika Takaoka), 235, 239–241
Takechi, Toshimi (Toshimi Takeichi), 59 Y
Tanaka, Gentaro (Gentaro Tanaka), 79 Yada, Seki (Seki Yada), 49
Tanaka, Hisashige (Hisashige Tanaka), 47, 50 Yamada, Takehisa (Takehisa Yamada), 29
Tanaka, Ichibei (Ichibei Tanaka), 79 Yamamoto, Tatsuo (Tatsuo Yamamoto), 60
Tanaka, Kazuhiro (Kazuhiro Tanaka), 81, 229, Yamanaka, Shinroku (Shinroku Yamanaka),
230 11, 16
Tanaka, Shinzo (Shinzo Tanaka), 70 Yamauchi, Sataro (Sataro Yamauchi), 202
Teratani, Takeaki (Takeaki Teratani), 68, 70 Yamazaki, Hiroaki (Hiroaki Yamazaki), 15, 43,
Tokugawa, Akitake (Akitake Tokugawa), 28, 86, 127–128, 163, 250–253
46, 74 Yanagi, Sotaro (Sotaro Yanagi), 49
Tokugawa, Yoshinobu (Hitotsubashi) Yanai, Hitoshi (Hitoshi Yanai), 245
(Yoshinobu Tokugawa (Hitotsubashi)), Yanai, Tadashi (Tadashi Yanai), 238, 245–254,
74 264, 224
Toyoda, Aiko (Aiko Toyoda), 129, 130 Yasuda, Hajime (Hajime Yasuda), 65
Toyoda, Kiichiro (Kiichiro Toyoda), 97, Yasuda, Teruko (Teruko Yasuda), 65
127–135, 217, 262 Yasuda, Zen-etsu (Zen-etsu Yasuda), 66
Toyoda, Risaburo (Risaburo Toyoda), 128, Yasuda, Zenjiro (Zenjiro Yasuda), 40, 63–70,
129, 131 87, 88, 261
Toyoda, Sakichi (Sakichi Toyoda), 119, Yasuda, Zennosuke (Zennosuke Yasuda), 65
127–130 Yasuda, Zenzaburo (Zenzaburo Yasuda), 65, 66
Toyokawa, Ryohei (Ryohei Toyokawa), 59 Yasuoka, Shigeaki (Shigeaki Yasuoka), 23, 44,
Tsuda, Koji (Koji Tsuda), 49 50, 51, 54, 60, 68
Yokoyama, Michio (Michio Yokoyama), 116,
117
U Yonekura, Seiichiro (Seiichiro Yonekura), 163,
Uchida, Kosaku (Kosaku Uchida), 59 173, 226
Uchiike, Renkichi (Renkichi Uchiike), 150 Yoshikawa, Taijiro (Taijiro Yoshikawa), 59
Udagawa, Masaru (Masaru Udagawa), 8, 48, Yui, Tsunehiko (Tsunehiko Yui), 53, 64–70,
137, 142–147, 168 107, 128–131, 134, 143, 182, 191, 196
Subject Index
A Bloom Energy Japan, 254

Ad Hoc Administrative Reform Promotion Breakthrough innovation, 2–4, 7, 8, 23, 30, 88,
Council, 209 119–125, 135, 147, 217, 221, 257–264
Ad Hoc Administrative Research Council, 209 Bridgestone Tire, 181
Ajinomoto, 119–125, 217 British P&O (Peninsular and Oriental) Steam
American Depositary Receipts (ADRs), 191 Navigation Company, 54
American Honda Motor, 190, 191 Bulova, 190, 197
Amoeba management, 229, 233, 234 Businessland Japan Co., 251
Anglo-Iranian Oil Company, 149
Aozora Bank, 252
ARM Holdings, 254 C
Art Shokai, 183 Calling, 205
Asahi Beer, 119 Canon, 181, 251, 259
Asahi Bemberg Silk Thread Company, 140 Capitalist manager, 238
Asahi Kasei, 138, 140 Catch-up industrialization, 213–215
Asahi Silk Weaving, 140 Central Research Institute of Electric Power
Asano Cement, 69, 70 Industry (CRIEPI), 117
Asano Chuya Bank, 69 Cerberus, 252
Asano Family Company, 69 Chain operation, 237
Asano Shipyard, 69 Chichibu Cement, 203
Asano zaibatsu, 69, 70 China Idemitsu Kosan, 155, 156
Asian Petroleum, 151 Chisso Corporation, 139, 142
ASPESI Japan, 249 Chochitsu Kayaku, 138
Atami meeting, 178, 179 Chosen Biru, 138
Automatic shuttle-changing device, 129, 130 Chosen Chisso, 138
Azumi Electric, 139 Chosen Coal Industries, 138
Chosen Colonial Bank, 141
Chosen Kogyo Kaihatsu, 138
B Chosen Maito, 138
Bank of Chosen, 141 Chosen Suisan Kogyo, 138
Bank of Japan, 39, 49, 60, 64–67, 109, 162 Choshinko Suiden Company, 138
Bank of Tokyo, 158 Chubu Electric Power, 106, 116
Bell Telephone Laboratories, 187 Chugoku Electric Power, 106
Besshi Copper Mine, 8 Chuo Doboku, 138
Big Three Merchant Families, 12, 25, 26 Collective ownership, 23, 45
© Kreab K.K. 2023 285

286 Subject Index
Comdex, 251 Federation of Electric Power Companies of

Commercial Law Office, 74 Japan (FEPC), 114
Commoditization, 258, 262 Feudal system, 34, 88
Consumption revolution, 170, 171 Fifth Bank, 69
Creative destruction, 2 Financial zaibatsu, 45, 63, 67, 70, 87
First mover advantage, 257, 258, 260, 262, 264
First National Bank, 74, 76
D Five-year plan for Manchurian industrial
Daiei, 236, 239 development, 145, 146
Dai-Ichi Bank, 76, 77, 87, 165, 166, 206 Ford system, 133
Dai-Ichi Kangyo Bank, 251 Four major zaibatsu, 64, 137
Daimyo financing, 12, 14, 16, 25 Franchise (system), 238, 240–241
Daini Denden Kikaku, 231 FRL Korea Co., 249
Dai-Nippon Beer, 119 Fuji Iron & Steel Company, 162, 165, 166
DAT Motors, 145 Fujitsu, 251
DDI Corporation (DDI), 225, 231–233 Fukagawa Cement Works, 69
A distribution keiretsu, 172, 173, 178 Fukuhaku Electric Railway, 109, 110
Denden Kosha, see Nippon Telegraph and Fukumatsu Shokai, 109
Telephone Public Corporation (Denden Fukushima Daiichi Nuclear Power Plant
Kosha) accident, 222
Denen Toshi Co., 100 Furukawa zaibatsu, 45
Depopulation society, 222
Diamond, 132, 138, 174
Disruptive innovation, 3, 4, 221, 257–260, G
262–264 Galapagos syndrome, 258, 262
Dissolution of zaibatsu, 171, 195 Gapponshugi, 80–83
Distribution revolution, 170, 172, 236, 237 GE, 203
Dodge Line, 132, 221 General zaibatsu, 45, 63, 70
Dominant strategy, 238–240 GHQ, 116, 177
Double-entry bookkeeping, 15–16, 23 Globalization, 190, 223
“God of management”, 173, 174, 179
“God of retail”, 235, 239, 242
E Godo Tochi, 138
Early modern, 29, 33, 34 Gould-Coupler Company, 143
East Asian Miracle, 215, 216 Great East Japan Earthquake, 222
Echigoya, 19–21 Group 1984, 210, 211
Echigoya Hachirobei-Mitsui Jiroemon, 20 GU, 249
Economy of scale, 142
Economy of scope, 142
Economy of speed, 142 H
Edo business method, 20–22 Haber-Bosch process, 140
Edo Zumi, 11–13 Hakata Electric Light Railway, 111
Electric Power Development Company Hankyu, 49, 99, 102, 105–107
(J-Power), 146 Hanshin, 102, 103, 105
Emerging konzern, 138, 142 Harima Shipbuilding & Engineering, 206, 207
Escher Wyss, 202, 203, 206 Heisei financial crisis, 221
ETNA Japan, 205 Higashi-Honganji, 47, 48
External effect, 195 Hitachi Denryoku, 138
Hitachi Home Appliance Sales, 172
Hitachi-maru, 60
F Hitachi Seisakusho, 138
Fairchild Corporation, 228 Hitotsubashi University, 77
Fast Retailing, 245, 246, 248–250 Hoden Oil Company, 69
Subject Index 287
Hokkaido Electric Power Company, 106 Japan Business Federation (Keidanren), 201,
Hokkaido Takushoku Bank, 40, 221 207
Hokuriku Electric Power Company, 106 Japan Development Bank, 165
Honda Motor Co., Ltd., 184–186, 189, 191, Japanese-style management, 20, 26, 82, 97,
192, 197 163, 223, 257, 260, 263, 264
Honda R&D Co., Ltd., 198 Japan Highway Public Corporation, 146, 232
Horaisha, 16 Japan Machinery Research Institute, 183
Hudson, 251 Japan Measuring Instruments, 182
Hypothesis-testing ordering, 241–242 Japan National Railways, 232
Japan Nitrogenous Fertilizer Company, 139
Japan Petroleum Resources Development, 145
I Japan Post Steamship Company, 54
Iccho London, 57 Japan SME Political Federation, 146
Idemitsu Kosan, 148–151, 154, 155, 157, 158, Japan Softbank, 250, 251, 253
161, 162 JFE, 161
Idemitsu Shokai, 150–155, 158 Joshin Denki, 251
IDO Corp, 232 Just-In-Time, 134
Iesadame Kiroku Oboe, 12
Imabashi-Konoike Family, 11, 12
Inamori Foundation, 230 K
Incentive theory, 240, 241 Kaizen (improvement), 135, 217, 262
Incremental innovation, 2–4, 88, 93–97, Kamaishi Iron Works, 86
127–135, 216, 217, 257, 258, 262 Kansai Electric Distribution, 116
Industrial Bank of Japan, 40, 76, 141 Kansai Electricity, 110, 113
Industrial revolution, 1, 3, 39, 40, 74, 93, 167 Kansai Electric Power, 106, 107, 116
Industrial zaibatsu, 63, 68–70, 87 Kanto Electric Distribution, 116
Information and Communication Technology Kao Corporation, 122
(ICT), 257–259, 262 Kashiyama, 237
Innovator’s Dilemma, 3, 258 Kawasaki Dockyard, 86, 162
Ino Kiichiro Shoten, 122 Kawasaki Heavy Industries, 162, 195
Inter-Han market, 7 Kawasaki-Matsukata manufacturing zaibatsu,
Interop, 251 45
Intra-Han market, 7 Kawasaki Meihatsu Kogyo, 195
Investments invite more investments, 70 Kawasaki Steel Corporation, 161, 162,
Investor manager, 40, 70, 73–83, 87, 88, 261 165–168
Ishikawajima Brazil Shipyard, 206 KDD, 232
Ishikawajima Calling, 205 KDDI, 231–233, 254
Ishikawajima-Harima Heavy Industries, 206, Keihan Electric Railway Company, 76
208 Keio Gijuku, 45, 46, 48, 49, 59, 60, 100, 109
Ishikawajima Heavy Industries, 203–208 Kingston Technology, 251
Ishikawajima Shibaura Turbine, 203–204, 207, Kobayashi Tomijiro Shoten, 119
208 Kobe Kogyo, 196
Ishikawajima Shipyard, 76, 202–204, 207 Kobe Steel, 86, 162, 163, 165, 166, 189, 198
Itami-Konoike Family, 11 Kobu Railway Company, 68
Ito-Yokado, 238, 241, 242 Kokusai Denshin Denwa, 232
IT revolution, 253 Konoike Bank, 16
Iwaki Coal Mine Company, 69 Konoike Family, 8, 11–17, 25
Konoike Gomei Kaisha, 16
Konzern, 44, 137–148
J Korea Electric Power Corporation (KEPCO),
Japan Airlines, 76, 225, 229, 233–234 254
Japan as Number One, 96 Koriyama Lighting Company, 139
288 Subject Index
Kuhara Mining Company, 144 Mining zaibatsu, 45

Kuhara zaibatsu, 144 Minoh-Arima Electric Railway, 100, 102–104
Kyocera Corporation, 226, 229, 231 Mitsubishi (family and zaibatsu), 44, 45, 50,
Kyocera Philosophy, 230, 233 53–61, 63, 68, 77, 87, 124, 137, 140,
Kyodo Gyogyo, 138 141, 145, 147, 172
Kyodo Unyu Kaisha (KUK), 55, 56 Mitsubishi Bank, 189, 198
Kyoritsu Company, 144 Mitsubishi Company, 57
Kyosai Gohyakumei Company, 68 Mitsubishi Electric Corporation, 56
Kyoto Ceramic (Kyocera), 225–230, 232–234 Mitsubishi Estate Co., Ltd., 57
Kyushu Electricity, 109–111 Mitsubishi Goshi Kaisha, 57, 59, 60
Kyushu Electric Light Railway, 110, 111 Mitsubishi Heavy Industries, 56
Kyushu Electric Power, 106 Mitsubishi Motors Industries, 56
Mitsui (family and zaibatsu), 23, 43, 45, 100
Mitsui Bank, 44, 46–50, 100, 128, 187, 198
L Mitsui & CO., LTD., 47–49, 123, 129, 143
Latecomer advantage, 257, 258, 262 Mitsui Echigo-ya Drapery Shop (Echigo-ya),
Lehman Brothers, 222 19–21
Lion Corporation, 119 Mitsui Family Association, 50
Logistics zaibatsu, 45 Mitsui Omotokata, 23, 24
Long-Term Credit Bank of Japan, 161, 221 Mitsukawa Company, 54
Long-term employment, 82, 263 Mitsukoshi, 49, 236
Lost Decade, 2, 3, 161, 211, 221, 222, 231, 241, Miyaki Electric MFG. Co., Ltd., 226
260 MONET Technologies, 254
Lost three decades, 2, 4 Moral-economy unity theory, 74
Lost two decades, 2, 4 Mori konzern, 137
Lotte Shopping, 249 Morinaga Seika, 119
Mr. Administrative reform, 201–211
Mr. Doko of dried sardines, 210
M
Made in China, 246–248
Management nationalism, 85 N
Manchuria Heavy Industries Development Nagasaki Shipyard, 56, 59, 60
(Mangyo), 138, 145–147 Nagasaki Shipyard and Machinery Works
Manchuria Idemitsu Kosan, 155 [NSMW], 56
Manchurian Oil (Manseki), 154 Nagase Shoten, 122
Manufacturing-industry zaibatsu, 164 Nagoya Electric Light Company, 110
Marcus Samuel Company, 69 Nakai Family, 8, 25–31
Marusan Shokai, 109 Nanbei Suisan, 138
Marusho Motor Co., Ltd., 197 Nankai, 103
“Matsushita Electric Housewares NASDAQ Japan, 252
Manufacturing Works”, 175, 176 National (Store) Association, 172
“Matsushita Electric (Industoriial company)”, NEC, 251
169, 172–174, 176–179, 182 New economy, 223
“Matsushita Electronics”, 226, 227 New Japanese-style management, 82, 83, 263,
Matsushita Institute of Government and 264
Management (MIGM), 179 New Japan Nitrogenous Fertilizer Corporation,
“Matsushita’s way of doing business”, 173 142
Mechanism of restraining investments, 223 New York Stock Exchange, 191
Meguro-Kamata Electric Railway, 100 Nicchitsu Kayaku, 138
Meidi-Ya Co., Ltd., 60 Nicchitsu Kogyo, 138
Meiji Life Insurance Company, 60 Nicchitsu konzern, 138, 142, 147
Meritocracy, 83, 263 Nicchitsu Shoken, 138
Minamata Disease, 139 Nihon Carbide Shokai, 139
Subject Index 289
Nihon Chuya Bank, 69 Osaka Spinning Company (Osaka Boseki

Nihon Gaishi, 225 Kaisha), 76
Nihon Godo Kosen, 138 Osaka Tekkosho, 138
Nihon Hatsusoden, 115 Osaka Trade and Exchange Inc., 16
Nihon Hogei, 138 Osaka Warehouse, 16
Nihon Kogyo, 182
Nihon Ko-on Kogyo, 182
Nihon Sangyo, 115, 137, 138, 144–146, 148 P
Nihon Shokuryo Kogyo, 138 Pacific Steamship Company, 54
Nihon Tanko, 138 Panasonic, 173, 176, 177
Nine-electric power company system, 99, 106 Personal Care Systems Co., Ltd., 246
Nippon Bemberg Silk Thread, 140 Philips, 226
Nippon Brick Manufacturing Company, 76 Photo Chemical Laboratory, 182
Nippon Credit Bank, 221, 252 PHP Institute, Inc., 228, 230
Nippon Denko, 137 Platt, 130, 131
Nippon Denryoku, 115 Postal Steamship Mitsubishi Company, 57
Nippon Kangyo Bank, 40, 76 Prefectural Agricultural and Industrial banks,
Nippon Kokan, 162 40
Nippon Koku Yuso Kaisha, 76 Pre-modern, 33, 34
Nippon Life Insurance Company, 16 Pre-packaging system, 237
Nippon Oil Co., Ltd., 69 Primitive accumulation, 39
Nippon Railroad, 76 Principle of equal opportunity for honor
Nippon Soda, 137 students, 165–167
Nippon Steel, 259 Product-by-product merchandise management,
Nippon Steel Works, 86 241–243
Nippon Telecom, 253 Proto-industrialization, 37
Nippon Telegraph and Telephone Public Public Service Committee, 107
Corporation (Denden Kosha), 118,
231–233, 253
Nippon Yusen Kaisha (NYK Line), 49, 56, 59, R
60, 76 Radical innovation, 2
Nissan Gomu, 138 Reorganization of electric power business, 113,
Nissan Kisen, 138 115–117
Nissan konzern, 138, 142–147 RIKEN konzern, 137
Nissan Motor Co., Ltd., 145 Rising Sun Oil Company, 69
Nissho-Maru Incident, 149, 158 Rosseti, 254
Nisso (Nippon Soda) konzern, 137 Ryoden Corporation, 172
Nomura zaibatsu, 45
Novell, 251
NTT, 231–233, 253 S
NTT DoCoMo, 233, 253, 254 Samurai scholar, 58
Sanjushi Bank, 16
Sanwa Bank, 16
O Sanyo Electric Company, 172
Ogori Shoji, 245 Sanyo Railway (SR), 46, 49, 60
Oil Distribution Public Corporation, 158 Sapporo Beer, 76, 119
Oji Paper Company, 76 SB Energy, 254
Okinawa Electric Power Company, 116 Scientific management, 110–112, 116
Ōkura zaibatsu, 45 Secom, 232
Old-type Japanese-style management, 263 Second defeat in the war, 161
Omi merchant, 8, 25–26, 29 Seiko Watch Corporation, 259
Onward Kashiyama, 237 Self-service, 237
Organized entrepreneurial activity, 86 Seniority promotion system, 82, 83, 263
Osaka Electric Light Co., 174, 175 Seven & i Holdings Co., Ltd., 238
Osaka Shosen, 69 Seven-Eleven Japan, 238–242
290 Subject Index
Sharp Corporation (Hayakawa Electric Industry Teikoku Dozai Kogyo, 138

Company), 181 Teikoku Oil Co., Ltd., 145
Shell, 151 Teleway Corporation, 232
Shell Oil, 69 Ten-electric power company system, 116
Shibaura Seisakusho, 50, 142, 143, 203, 207 Texas Petroleum, 151
Shibusawa Eiichi Memorial Foundation, 73, 75, Theory of constraints, 240, 241
77–79, 82 Third National Bank, 64, 65, 67
Shikoku Electric Power, 106 3Cs, 168, 173
Shinko [Sinheung] Tetsudo, 138 13th National Bank, 16
Shipbuilding scandal, 205 33rd National Bank, 48
Shiseido, 119 Three major zaibatsu in Chukyo, 128
Shofu Industries, 225–227 Three sacred treasures, 168, 172, 173
Showa Denko, 137 Tobata Casting Company, 143
Showa Fertilizer, 137 Toho Electric Power Company, 99, 117
Showa financial crisis, 221 Tohoku Electric Power Company, 106
Showa Steel, 166 Tokai Bank, 158
Siemens, 139 Tokai Seiki, 183
Sochiku’s Will, 23 Tokio Marine Insurance, 39
Social entrepreneur, 74, 77–78, 146, 147 Tokyo Denki, 119, 207
Softbank, 245, 251–254 Tokyo Electric Light Company, 76
Softbank Group, 252, 254 Tokyo Electric Power Company (TEPCO), 76,
Softbank Mobile, 254 222
Sogi Electric, 139 TOKYO GAS Co., Ltd., 69
Sony, 181–198, 227, 232, 251, 259 Tokyo Gas, 69
Sony Corporation of America, 190 Tokyo Higher Technical School, 202
Southland, 238 Tokyo Publishing and Sale (TOHAN), 238
South Manchurian Railway (Mantetsu), 40, 145 Tokyo Tsushin Kogyo, 182, 183, 190
SPA (Specialty Store Retailer of Private Label Toray Industries, 250
Apparel), 248 Toshiba Corporation, 203
Specialized manager, 43 Toshiba revolution, 208
“Special procurement” Korean War boom, 133 Toshiba Trading Company, 172
Sprint Nextel Corporation, 254 Toyota automatic loom, 130
Standard Oil, 151, 152 Toyota Automatic Loom Works, 130, 131
State control, 95, 113–115, 117, 118, 153, 154 Toyo Nitrogen Association, 140
State Grid Corporation of China (SGCC), 254 Toyo Steamship Company, 69, 70
Steam turbines, 202, 203 Toyota Automatic Weaving Factory, 128, 129
Steel Control Board, 164 Toyota Boshoku, 128–131
Sudden rise of companies, 110 Toyota Boshoku Factory, 128, 129, 131
Sumitomo (family and zaibatsu), 12 Toyota (Labor) Dispute, 132–133
Sumitomo Metals, 162, 163, 165, 166 Toyota Motor Corporation, 127–129, 131,
Sumitomo Steel Casting, 86 217
Suntory, 181 Toyota-Platt agreement, 130, 131
Supply chain management (SCM), 241, 242 Toyota Production System (TPS), 133–135,
Suzuki Shoten, 119, 121, 124, 125 217
Tsukumo Shokai, 54
Tsurumi Maichiku, 69
T Two-front operation, 261–264
Tachibana Gakuen, 201 Type-G automatic loom, 130, 131, 135
“Tailoring sales”, 21
Takarazuka Revue, 99, 105
Tanasaki sale, 20–21 U
Tanpo [Danpung] Tetsudo, 138 Uniqlo, 245–249
Tap water philosophy, 175, 179 UNIQLO Design Studio, 248
Subject Index 291
Urban-style tertiary industry, 99 Y

Ushio Electric, 232 Yahoo, 252, 253
Yamada Tanko, 138
Yamaguchi Bank, 16
V Yamaichi Securities, 221
Vacuum, 56, 152, 153, 172, 226 Yasuda (zaibatsu), 65–67, 69, 137
Venture manager, 225–234 Yasuda Bank, 64, 65, 67, 70
Vodafone, 233, 253 Yasuda company, 70
Yasuda Life Insurance Company, 68
Yasuda-ya, 64, 66, 67
W Yawata Iron & Steel Co., Ltd., 40
Walmart, 242 York Seven, 238
Western Electric, 187
Westernization of lifestyles, 236, 262
West Japan Railway Company, 46 Z
WILLCOM, 254 Ziff-Davis Publishing, 251, 252
World Bank, 215, 216

History of Innovative Entrepreneurs in Japan: Takeo Kikkawa

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Takeo

ISBN 978-981-19-9453-1 ISBN 978-981-19-9454-8 (eBook)

© Kreab K.K. 2023. This book is an open access publication.

Introduction: What Is Innovation? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Part I The Era of Breakthrough Innovations

Discussion Point 1: Early Modern or Pre-Modern? . . . . . . . . . . . . . . . . 33

Discussion Point 2: How Did Japan’s Economy Manage to Take

Part II The Era of Incremental Innovation

Conditions That Enabled Ajinomoto’s Commercialization . . . . . . . . . . . . . . 123

“Matsushita’s Way of Doing Business” as Practiced by the “God of

Founding of Daini-Denden Inc. (DDI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231

Notes About the Translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

Takeo Kikkawa PhD in Economics, The University of Tokyo, is Vice President

Abstract This section serves as an introduction to this book, which discusses

The Aim of This Book: Three Questions

© Kreab K.K. 2023 1

What Is Innovation: Three Views

The Book’s Structure: Three Time Periods

© Kreab K.K. 2023 7

The Konoike Family Tree

Shinroku Yamanaka (known later as Shin’emon), who is credited with establishing

© Kreab K.K. 2023 11

Development of Clear Sake and Its Shipment to Edo

The Beginning of [Konoike’s] Water Transport Business

Expansion into Financing and Lending to Daimyo

As mentioned in Overview I above, one of the key aspects of “novelties” in the

“Financial Statement” and Double-Entry Bookkeeping

The Konoike family's ﬁnancial statement is representative of the double-entry

The Konoike Family After the Meiji Restoration

Brief Biography of Takatoshi Mitsui

© Kreab K.K. 2023 19

Groundbreaking Nature of “Tanasaki Uri” (Store-Front

The Ground-Breaking Nature of Takatoshi Mitsui’s Retail

As Uemura notes here, the retail innovation implemented by Takatoshi Mitsui

breakthrough innovation, as in the case of the Konoikes who introduced double-

Introduction of the Joint Ownership System

Abstract This chapter introduces Genzaemon Nakai, a lacquerware merchant from

The Rise of Omi Merchants

© Kreab K.K. 2023 25

In other words, Sakudo regards the Nakai family as an embodiment of innovation on

The Nakai Family Tree6

Epoch-Making Nature of the Nakai Management Style

without an ownership stake. In addition, sometimes 2–3 additional investors

The Limits of the Nakai Family and Their Background

The “Novelties” of the Edo Period

Matao Miyamoto’s “Edo Period = Early Modern” Theory

© Kreab K.K. 2023 33

Prerequisites for Japanese Economy’s Early Takeoff

Abstract This section surveys the revolutionary consequences of Japan’s opening

Japan’s Encounter with Global Capitalism

© Kreab K.K. 2023 37

Accumulation of Capital and Labor

Industrial Revolution in Japan

Three Types of Businessmen

Abstract This chapter introduces Hikojiro Nakamigawa, a salaried manager who

Characteristics of Japanese Zaibatsu

© Kreab K.K. 2023 43

Differing patterns of development can be seen in the zaibatsu shift to industrial

Through a series of business history studies, it became clear that Japanese

Brief Biography of Hikojiro Nakamigawa

Recovery of Non-performing Loans

Beyond Nakamigawa’s management modernization and streamlining (point 1), a

But Kasuya also states in “Gosho no Meiji” that “Nakamigawa’s clean-up of