World’s oldest companies: Why are so many of them in Japan?

Why Are So Many of the World’s Oldest Companies in Japan?

Why Are So Many of the World’s Oldest Companies in Japan?

Businesses that stand the test of time.
Oct. 20 2014 3:40 PM

Keeping It in the Family

Why are so many of the world’s oldest companies in Japan?

Kongō Gumi
Employees of Kongo Gumi, which built temples, circa 1930.

Photo via Wikimedia Commons

The oldest running hotel in operation is not in Paris or London or Rome. It is, according to the Guinness Book of World Records, in Yamanashi, Japan: a hot-spring hotel called Nisiyama Onsen Keiunkan, which has existed since the year 705. The second-oldest is another Japanese hot-springs hotel, Hoshi Ryokan, founded in 718.

But it isn’t just the world’s two oldest hotels. Japan is home to the world’s oldest lots of things. Sudo Honke, the world’s oldest sake brewer, has been around since 1141. Before being absorbed into a subsidiary in 2006, the oldest continuously operating family business in the world was Kongo Gumi, which built temples, and had been doing so for 14 centuries. The list goes on, and includes Yamanashi Prefecture Company, which has been making goods for home Buddhist altars and clothing for monks since 1024; Ichimojiya Wasuke, Japan’s oldest confectionary company, founded in 1000; Nakamura Shaji, a Buddhist temple and Shinto shrine construction company that dates back to 970; and Kyoto-based Tanaka Iga, which has been making Buddhist goods since 885.

Ostensibly, it’s not surprising that an old country with an old economy would be home to so many old businesses. Many of the oldest companies are local and family-owned, such as sake brewers and inns (or ryokan) that were established for traders in the eighth century along the route from Tokyo to Kyoto. Even before it became the first non-Western, non-Christian country to industrialize in the 1870s, Japan boasted a well-developed agricultural economy “with rather sophisticated urban populations,” says Hugh Patrick, director of Columbia Business School’s Center on Japanese Economy and Business. This semi-elite urban class provided a strong consumer base.

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But that only explains how the companies were established early on, not necessarily how they have managed to last. One factor was the right of primogeniture, says David Weinstein, professor of the Japanese economy at Columbia University. Because the eldest son inherited all of a patriarch’s wealth, companies in Japan could be passed on entirely to a single member of the family.

Even though primogeniture faded with the 20th century, owners still often pass their companies on to a single heir—although keeping business in the family is often aided and abetted by adult adoption, in which the company head legally adopts the right person to run his firm and then passes it on. (These adult adoptions are sometimes facilitated by a marriage between the heir presumptive and the owner’s daughter.) In 2011, more than 90 percent of the 81,000 individuals adopted in Japan were adults. Firms run by adopted heirs, research shows, outperform those run by “blood” heirs—and both adopted and blood heirs outperform nonfamily firms.

The infusion of literal new blood into old family businesses ensures that the nation’s ancient firms can keep evolving. The proof is in the pudding: Most of Japan’s oldest companies are family-owned. Weinstein points to the robust example of Sumitomo and Mitsui, both centuries-old, which merged to become the multinational SMBC, Japan’s second-largest bank. Perhaps most famously there is Nintendo, which started out as a playing-card maker in the 1800s and managed to metamorphosize into an iconic consumer electronics company while remaining a continuously owned family concern.

Hugh Whittaker of the University of Oxford’s Nissan Institute of Japanese Studies says that such businesses strike a delicate balance between continuation and innovation, a line they have walked for centuries. “The logic of doing business in Japan is a logic of commitment rather than a logic of choice,” Whittaker says, stressing that owners privilege longevity over the present moment. In other words, Japan’s business culture is not one to obsess over quarterly reports. “Family-owned enterprises are always going to have a lot more persistence,” Weinstein says. “They continue in the same sense that the name continues.”