Tag Archives: Prof. Enrique Soriano

138 years of murder, sellout, buyout, growth

THE Eu Yan Sang Group is one inspiring family enterprise and undoubtedly deserves to be in the top spot of my Family Business Longevity Series because of the resiliency and resolve of the fourth generation members to regain control, where they ended up owning the majority shares after engineering a buyout from an outsider/investor.

It is a classic “stalls to stars to almost stalls and back to stars” turnaround story!

According to an account by Rachel Cheung in the South China Post, “despite years of family strife, the murder of the founder’s wife by her brothers-in-law and a takeover by a Singapore investment group, traditional Chinese medicine maker Eu Yan Sang has survived and flourished as a Hong Kong icon.”

Founded in 1879, Eu Yan Sang is Asia’s leading brand in the healthcare industry, with a core focus on traditional Chinese medicine (TCM). They market quality Chinese herbs, Chinese Proprietary Medicines, as well as health foods and supplements, offering more than 900 products under the Eu Yan Sang brand and sub-brands plus over 1,000 different types of Chinese herbs and other medicinal products.

The company’s ability to control the total supply chain enabled it to expand across Singapore with more than 50 retail outlets in major shopping malls and residential estates.

Overcoming years of strife and betrayal, the Eu Yan Sang Group is celebrating its 138th anniversary this year. It is now being run by the fourth-generation family members headed by the savvy and daring Richard Eu, two cousins together with institutional shareholder Temasek Holdings & Tower Capital.

In the 1870s, founder Eu Kong Pai, better known as Eu Kong, left the village of Foshan in Guangdong, China and settled down in the small mining town of Gopeng, Perak (now Malaysia). After failed ventures in a bakery and a textile dyeing business, Eu joined thousands of Chinese miners on a tin rush and noticed that his fellow mine workers were heavily dependent on opium as the easiest method for immediate relief for their medical needs.

He decided to start selling traditional Chinese herbal medicine using the ancient recipes that had been passed down through Chinese culture. Eu Kong opened his first Chinese medicine shop in 1879 in Gopeng.

In a 2009 biography by Ilsa Sharp about his son, Eu Tong Sen, the father was pictured as a savvy entrepreneur, acquiring land that was rich in tin deposits. Eu Kong eventually became a prominent businessman, supported by his second wife Mun Woon Chang, a well-connected Nyonya (female Malacca Strait-born Chinese).

The book also recounted that Eu’s success was short-lived. A disease suspected as smallpox, claimed his life at the age of 37. All his possessions went to Mun, triggering the envy of his two gambling addict brothers, who murdered her by lacing the family dinner with poison during a visit to China.

Sixteen-year-old Eu Tong Sen, who inherited his father’s business, narrowly escaped death himself. Toughened by the traumas of his early life, he went on to become one of the richest men in Southeast Asia in the early 20th century, owning tin mines, rubber plantations, properties and even a bank.

To be continued…

(esoriano@wongadvisory.com)

Only One Child Inherits (Last Part)

NAIROBI, KENYA. We have all heard about the 3rd generation curse and are familiar with the grim statistics that only 3% of all family-owned corporations make it into the fourth generation.

I am in Nairobi now for a week-long World Bank/IFC mission to promote corporate governance amongst East Africa’s aggressive family owned enterprises and I would frequently challenge business leaders to ponder on the unique Japanese approach to longevity especially for the Toraya Group.

Five hundred years later, Toraya continues to stand tall above other family owned enterprises with the current proprietor belonging to the 17th generation, ably supported by the next in line successor-son Kurokawa Mitsuharu.

How did the family business managed to navigate the business amidst an emotion-driven enterprise where family relationships always come first over business?

The “ie” concept, unique only to Japanese family business community immediately comes to life.

Non-existent to the western world, the concept in a patrilineal household, is at the core of the traditional Japanese family and is based on a forefather or primogenitor model.

In this ecosystem, only one child inherits. All of the other children in any generation are expected to eventually leave the family and go on to establish themselves in some other institution. The chosen successor, usually the eldest son, inherits the family and everything to do with the family, and the rest of the children have to find their own way in the world.

In theory, the “ie” should last forever and in principle never dies. Japanese culture plays down the role of the individual and places significance on the importance of conformity and the success of the group.

The primary objective of an “ie” is to preserve the clan. Therefore, it entails: (1) long-term planning, (2) priority to market share, rather than profit, (3) weak shareholder position, (4) resisting mergers and acquisitions, and (5) displaying, even more, strength in the face of adversity.

Since the company should last forever, a Japanese family business based on the “ie” principle will have very few disturbances from misalignment or possible frictions between the different family circles.

The Chairman/CEO and head of the “ie” is usually in full control and the family is programmed to support him in any possible way.

In case there are no children or the offspring of the owning family is not willing or capable to fill the position, the head of the “ie” can rope in an outsider via adoption.

This centuries-old adult adoption practice in Japan was developed as a mechanism for families to extend their family name, estate and ancestry without an unwieldy reliance on bloodlines.  The Chairman/ CEO of the “ie” can substitute his own bloodline with a competent person that he likes.

By choosing a “mini-me” he can ensure the survival of the business and bar incompetent heirs from ruining the family lineage. The effect is twofold: (1) his own children will be much more aligned to the overall business goals; (2) he signals to his employees or talent pool that they also have a theoretical chance to make it big.

It is the unwritten spirit of “ie” and truly lived unity that is powerful. Written agreements are important, but worthless if the core “ie” does not exist.

This addresses the question why Japan has 7 out of the 10 oldest companies on the planet and also has the highest concentration of old family businesses by any measure such as GDP, population, and land mass.

(esoriano@wongadvisory.com)

The Heart of a 500 Year Old Family Business (Part 2)

In Toraya’s English webpage, the first clearly documented reference to Toraya is an existing temple records from 1600. There are also records dated September 15, 1635 that provide a glimpse into the company’s business at the time of proprietor Enchu Kurokawa’s death. I will walk the reader and articulate each of Toraya’s longevity principles as manifested in their 500 years of existence.

No. 1 It Is Important to Focus on the Present

Toraya’s current president, Kurokawa Mitsuhiro, the seventeenth to take the helm, does not spend too much time dwelling on his company’s illustrious past.  Kurokawa believes focus on what needs to be done now, rather than simply following the ways of the past, is what has kept Toraya in business all these years and also allowed it to preserve many of its traditions.

According to him, “It’s mere hindsight for us to ponder why Toraya has been around for so long.  What’s important is not the past or even the future, but the present. It comes down to doing what needs to be done to create the sort of sweets that customers will like.”

This flexibility may have something to do with the fact that there are no set-in-stone Kurokawa “family precepts” to be passed down from father to son. When Kurokawa Mitsuhiro took over from his own father, back in 1991, he realized the freedom and responsibility that came with the position: “Since there were no precepts, it was basically: Do what you like—it’s all up to you now.”

Thus, Kurokawa asserts that choice, not circumstances, determines success.  As Geoffrey Gaberino, 1984 Olympic Gold Medalist says, “The real contest is always between what you’ve done and what you’re  capable of doing.  You measure yourself against yourself and nobody else.”

It might sound overly simplistic, but if you’re going to sell something successfully, it better be worth the price tag.  This is another longevity formula for success that the Toraya Company holds on to.

No. 2 The Goal is to Be Relevant And Authentic

Temple records dated September 15, 1635 showed a list of 20 types of confectionery that Toraya (literally, “tiger store”)  served to the Empress Meisho on the occasion of her visit to her father’s court of retirement.  In 2003, the company opened its first Toraya Café in the fashionable Roppongi Hills building in Tokyo, featuring a lineup of sweets that combine elements of wagashi and Western confectioneries to create a whole new taste category.

The company’s effort to cultivate a taste for wagashi is not limited to overseas; it is also doing its utmost to foster demand among Japan’s younger generation, which has become more familiar with European-style confectionaries than home-grown ones.

No. 3 Product Centric

Matsudaira Naritada, head of Toraya’s Public Relations Division, explains that the firm is always developing new namagashi and other sweets—a process that takes around three years for each item. But Toraya only introduces a sweet once it has complete confidence in the new creation—without relying on customer feedback along the way to make adjustments.

Because the namgashi lineup is always changing, including the appearance of brand-new items, each visit to a Toraya shop promises a novel encounter. And the items selected have a connection to the particular time of the year, both in their design and in the ingredients they contain.

To be continued…

(esoriano@wongadvisory.com)

A 500-year old Family Business (Part 1)

What make some family businesses go on for centuries while others succumb and die early? My quest for corporate longevity continues.

In my last article, I glowingly talk about Lee Kum Kee’s 129 year run where they defied the third-generation curse but on the one hand, I have also written numerous articles about the 3rd generation curse and have highlighted statistics that only 3% of all family-owned corporations make it into the fourth generation.

In an insightful research material by Schwartz and Bergfeld, the authors pointed to one country that seemed to challenge the 3rd generation curse much better than others.

Japan has 7 out of the 10 oldest companies on the planet and also has the highest concentration of old family businesses by any measure such as GDP, population, and landmass. According to a 2008 study from the Bank of Korea, the world had 5,586 companies that were older than 200 years. In the same study, Japan was number one with 3,146 firms or 56 percent; the second was Germany with 837 or 15 percent; the Netherlands came third with 222 and fourth was France with 196 companies.

But it is not only the extreme cases of very old companies that are surprising, the overall life expectancy of a Japanese family business is higher in general. According to Professor Toshio Goto from the Japan University of Economics in Tokyo, the average lifetime of a Japanese family business in 2005 was 52 years, more than double that of its American counterparts.  What can the unique Japanese approach teach us about longevity?

If family businesses from around the globe strive for future prosperity and family survival in an increasingly volatile, complex and ambiguous world, how does a tradition-rich company like Japan’s Toraya Confectionery Company managed to keep pace with an ever-changing world?  Even with a great idea, thorough research and hours and hours of hard work, one rule still applies:  Nothing is certain in life and in business.  No one can unfailingly know if one will fail or succeed in life, how investors will receive a startup idea or whether a company will survive past the one-year mark.  So, how can one increase the odds of, well, beating the odds?

It’s a question asked often enough that it deserves an answer.

Toraya Confectionery Co. Ltd. is a Japanese confectionery company founded by  Enchu Kurokawa in early 16th century, Kyoto.   Toraya, a maker of wagashi (traditional Japanese confections), was a supplier to the imperial court during the reign of Emperor Goyozei, which was from 1586 to 1611. Toraya established a foothold in Tokyo in 1869, after the national capital was transferred there on the heels of the Meiji Restoration. At present, Toraya has three factories and approximately 80 shops throughout Japan, in addition to a boutique in Paris.

Running a business for almost 500 years is not without challenges, mainly in the form of disasters, change in society, economic transformation and several World War upheavals and Toraya  countered by shifting from being the imperial family’s purveyor to opening retails stores.

Steve Jobs once said, “You can’t connect the dots looking forward; you can only connect them looking backward.”   Even the Great Confucius explained that if we want to define the future, we have to study the past.  And so, let us study Toraya’s history for the past 500 years.  Indeed, for a small start-up company, to last this long is a testimony to its great history. Since its inception, Toraya has grown big and evolved into a well respected corporate venture that has become known in Japan, the rest of Asia Pacific, and the world.

To be continued….

(esoriano@wongadvisory.com)