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No.3 ,Economy  Nov 26, 2010

UNIQLO’S SUCCESS ON THE GLOBAL STAGE

TAHARA SŌICHIRŌ Let me begin right away by asking if you could elaborate on a comment you once made that companies sticking to the status quo are on the path to bankruptcy. What did you mean by that?

YANAI TADASHI The business environment is constantly changing. Every day rival companies are coming up with innovative ideas and new technologies are being created. And consumer preferences also undergo change. So, obviously, if you just keep doing the same things, they’re going to stop working. Plans must be revised and business methods changed in light of the changing situation. And this is where the role of management is essential. Without proper management, a company will end up in self-preservation mode, where it repeats the same actions over and over.

What some call “stable” management could instead be called “thoughtless” management, because it means being stuck in a rut. Many executives seem to think that things will continue to go well into the future if they simply work hard on the basis of their current approach. This is a completely mistaken view, however, because in five years the situation will have changed dramatically.

The survival of a company depends on its executives’ continual pursuit of innovation on the basis of always pondering such issues as potential weak points in the current approach, changes in the world that might be occurring under the surface, and possible problems in particular organizations within the company.

Implementing change does of course entail risk. These days we see increasing numbers of top Japanese executives–particularly those with a “salaryman” mentality–who can’t take risks. But there is a need for company leaders to take risks after calculating the odds. And if a gamble doesn’t pay off, those executives need to take responsibility for the outcome. This is the sort of role that management has to play.

Japan Must Look to the World

TAHARA Back in 1990, Japan was listed as the most competitive country in the world in a survey conducted by the Swiss-based International Institute for Management Development. But in this year’s survey our country ranked twenty-seventh. And Japan’s per capita income this year ranked twenty-third worldwide, compared to third place in 2000. How do you account for this sharp drop in Japan’s global standing in recent years?

YANAI In a word, I’d say that it’s because people aren’t doing their jobs properly. If executives don’t pay attention, employees will end up working huge amounts of overtime. That’s true at our company too. But in many cases they’re doing work after hours that could have been completed over the course of the regular working day. In other words, just because an employee is putting in a lot of overtime, it doesn’t really mean that he or she is actually accomplishing a lot.

As they do their work, employees aren’t always bearing in mind whether what they are doing will really contribute to the company’s profitability or be effective as far as customers are concerned. They have a sort of artisan approach, which is all about repeating whatever one is capable of doing. This strikes me as one bad habit of Japanese people. Employees need to always apply creativity and ingenuity when performing their work. And a major part of any executive’s job is to encourage them to adopt that way of thinking. This seems to reflect the fact that there are too many executives who don’t really grasp what company earnings are all about.

TAHARA In that case, let me ask: What does a company need to do to make money?

YANAI Basically the key is to generate earnings throughout the world. People say stimulating domestic demand is important, but Japan by itself has nothing–just like Singapore and Hong Kong. So no matter how much Japan’s domestic industries might improve, they can’t generate enough earnings for the country as a whole to be viable. Japan has lost sight of this essential fact and turned in on itself, after it happened to enjoy a period of high economic growth after World War II so that it became a prosperous nation to some extent. Japan is the sort of country that simply cannot sustain itself unless it goes beyond its domestic market to generate earnings worldwide. This is a simple truth as far as I’m concerned.

We use the Japanese term gaishi [foreign capital] to refer to foreign companies operating in Japan. What I tell our employees is that we should strive to become a “made-in-Japan gaishi,” so to speak. That is to say, when a Japanese company like ours operates overseas, we are the gaishi as far as the local people are concerned.

TAHARA That’s true, now that you mention it. [Laughs]

YANAI This means that it’s necessary also to hire employees from foreign countries. At Uniqlo we’re doing our best to become the sort of company where non-Japanese employees find the working conditions amenable. One part of this is our decision to adopt English as the common in-house language. At the same time, though, our corporate DNA is that of a Japanese company, and I’d like for us to adhere to the desirable qualities of Japanese companies, such as fostering personnel, offering detail-oriented customer service, and making products with care.

Quick Judgment and Action

TAHARA In 2005 you proclaimed the in-company motto “Rapid judgment, rapid decision making, and rapid action.” As far as I’m aware, the only examples of top executives able to do those three things are Son Masayoshi of Softbank and perhaps Mikitani Hiroshi of Rakuten. Why is it that so many companies find this impossible to accomplish?

YANAI Perhaps it’s because they don’t actually feel that they’ve been driven into a corner. Japan is not taking advantage of its favorable position of being located near China and other Asian countries whose economies are robust. If this country continues to shut itself off from the rest of the world and holds tight to the status quo, it will no longer be viable. This means that we have no choice but to conduct business overseas. It really is as simple as that. And this is where the need for rapid judgment, rapid decision making, and rapid action comes into play. I think it is negligence on the part of Japanese executives to do nothing even when the need for action is staring them in the face.

TAHARA But if a company president carries out rapid judgment, rapid decision making, and rapid action, isn’t it a sort of dictatorship?

YANAI Rapid judgment, rapid decision making, and rapid action of the sort that will benefit the company are not possible unless the executive makes a habit of listening to the opinions of others, like store managers and the people in sales. It’s not enough to obtain indirect information on the workplaces in the form of reports from middle management; executives also need to communicate directly with employees on the front lines. If they do this, I don’t think the situation will end up being dictatorial.

TAHARA At first glance you seem to be the sort of executive who carefully devises a plan and then conducts business that adheres to it. But I’ve heard that is not in fact the case.

YANAI No, it isn’t at all. I do of course draw up plans, but no matter how carefully a plan is devised, once it is actually implemented all sorts of unplanned things will invariably occur. In the case of any business, it seems to me, one never knows beforehand how it will turn out. After the business is launched, company executives can then give thought to the next step. Someone who just thinks, without taking any action, will end up thinking of reasons to not take action. [Laughs]

Dealing with Initial Setbacks

TAHARA Uniqlo didn’t do so well when it first entered the Chinese market. What was the problem?

YANAI Basically, it was we tried to alter our approach to conform with conditions in China.

TAHARA So the old adage “When in Rome, do as Romans do” turned out to be wrong this time?

YANAI We entered China eight years ago, at a time when the income of Chinese consumers was still low, so we strove to minimize our prices. We used inexpensive Chinese materials and created products cheaply. But this didn’t win over Chinese customers. It was reminiscent of the time in Japan when consumers viewed goods from Europe and North America as being of superior quality because of their higher prices. Similarly, many in China equate price with quality, so when we lowered our prices to less than the Uniqlo standard, a lot of Chinese consumers assumed the quality of the clothing couldn’t be good. This taught me that if we were truly intent on going global, we’d have to sell goods of the same brand at the same level of quality and at the same prices.

TAHARA Uniqlo’s entry into the American market didn’t meet with initial success either. How do you account for that negative outcome?

YANAI The problem for us in the United States was that no one had heard of Uniqlo. We opened three outlets in suburban shopping malls, but it was as if a company from Singapore had decided to debut in Japan by opening a store in a shopping center somewhere on the outskirts of Tokyo, like Saitama or Chiba Prefecture. In other words, our first American stores created no impact whatsoever.

However, our office happened to be located in the Soho district of New York City. And we decided to set up a store next to the office to see if we could sell some of the extra inventory we happened to have on hand. It turned out that the clothes at that store sold well. Clothes that we put out on display there, in the simple interior on the first floor of an ordinary building, far outsold the clothes available at our suburban stores. This led us to create a large store in Soho in 2006, which has become our top-selling store in the world.

TAHARA What was the cause of the initial setbacks Uniqlo experienced in Britain?

YANAI The president we first appointed to head our subsidiary there had experience working for the British retail giant Marks & Spencer and attempted to follow the British style of management, which is completely different from our own approach.

TAHARA What was the difference?

YANAI His approach was to create a large head office and direct everything from there–sort of like the approach of the Japanese government today. There was a hierarchical mentality, under which store managers and sales staff were kept apart on distinct levels. This didn’t fit in well with our corporate culture. Our policy has always been to have store managers, sales staff, and the head office all work together, with everybody taking part in company management. We ended up sending over quite a few employees from Japan to help our company in Britain switch to the Uniqlo style of management.

TAHARA So there’s a worldwide Uniqlo style when it comes to both management and pricing?

YANAI That’s right. If we were to adopt the Chinese style when entering the Chinese market, there’s no way that we could beat out rival Chinese companies. The best approach, as far as we’re concerned, is to employ the optimal methods in a unified way throughout the world.

TAHARA What impresses me most is that after the initial setbacks–whether in China, the United States, or Britain–you gave it another shot and now are performing well.

YANAI It calls to mind the expression “Failure contains the seed of success.” This again points to the fact that nothing ever gets started until a person takes action and sees how it turns out. If you just sit around thinking things over, you won’t even manage to fail.

Aiming for ¥5 Trillion in Sales

TAHARA When Kanebō, Ltd. went bankrupt back in 2004, there was a pervading sense that the Japanese textile and apparel industry was dead. But you said at the time that it still had a future. Why did you think that?

YANAI Because our aim at Uniqlo was to set about creating a completely new sort of industry that was different from the existing textile, retail, or fashion sectors.

TAHARA What new aspects in particular did you want to create?

YANAI We were intent, first of all, on handling planning, manufacturing, and sales by ourselves. People in Japan have the idea that if you make something good, it will sell. But it doesn’t turn out that way in reality. To begin with, a product won’t sell if it doesn’t meet the needs of customers or if the company is unable to convey the message that it’s a good product. So Uniqlo set out to meet those requirements.

We also wanted to thoroughly eliminate inefficiency. The business of selling clothes is a very old one, but we wanted to make it as efficient as a high-tech industry. Our outlook regarding organization and human resources is modeled on the cutting-edge management techniques used in other industries.

Uniqlo has also strived to target the entire world for both production and sales. The textile industry tends to be the first viable industry of a nation as it progresses on the path of economic development. As a result, the production of textiles can be carried out across the globe, whether in China, Bangladesh, Vietnam, Cambodia, the Philippines, or Indonesia. We have viewed this as a source of strength.

TAHARA In 2005 Uniqlo had sales of 300 billion yen. At the time, you called for 1 trillion yen in sales by 2010. To be honest, I couldn’t help thinking you were talking too big in raising that new goal. But in fact you’ve almost reached it. What has made this possible?

YANAI I’d say it was because we set the goal in the first place. In order to accomplish anything, a goal is necessary. Employees are able to come together to carry out business because they’re all working toward the goal that has been set. It might sound like “talking big,” but the fact is that if people have a common goal, they’ll all do their best to reach it.

TAHARA So what is your latest goal?

YANAI Yes, well this is still no more than a goal, but I’d like Uniqlo to become a company with sales of 5 trillion yen and operating profit of 1 trillion yen by 2020.

TAHARA Five trillion yen in sales! That would be a five-fold increase over the next ten years, right?

YANAI Actually, more like a six- or sevenfold increase, because our sales have not yet reached 1 trillion yen.

TAHARA What an amazing goal!

YANAI Moving forward, we’re going to be able to make more extensive inroads in overseas markets–particularly in Asian countries. China, South Korea, and countries in Southeast Asia have been economically stable, and the world’s wealth has been steadily shifting to this region as a result. Of course, we also plan to make further inroads in the United States and Europe. My impression is that there has been a tremendous rise in business opportunities. And this is my basis for thinking the goals we’ve set are realistic.

Not a Low-End Retailer

TAHARA In 2004 Uniqlo declared that its orientation would no longer be toward selling goods cheaply. What was meant by that declaration?

YANAI At the time, just as today, we didn’t want Uniqlo to be viewed as a low-end retailer whose apparel sold well because of cheap prices. If you just look at price tags, you can find any number of brands that sell items at prices cheaper than ours. What sets us apart from them is that the goods we sell are of high quality. Our declaration that we would aim for higher quality rather than lower prices was intended to help consumers become better aware of this fact.

TAHARA Speaking of quality, it seems that you’re able to create your products starting from the choice of fabric materials now that you’ve moved beyond the level of a mere retailer by forming a partnership with the major textile maker Toray Industries. This is reflected in the very high quality of your products, like the Uniqlo undershirts that I wear myself, which keep a person from feeling sticky with sweat even on a hot summer day. Why did you aim to get involved in manufacturing as well as retailing?

YANAI The basic motivation was that we wanted to be a global player. Expanding globally requires a company to create products with a competitive edge. Toray is a company with the authentic fabric technologies needed to create such products. This is why we wanted to team up with them.

TAHARA And the design of Uniqlo apparel is also very stylish.

YANAI Thank you.

TAHARA Uniqlo clothes manage to combine affordable prices, good materials, and fashionable design. You really seem to want to have it all.

YANAI Well, that’s because our customers want to “have it all” when they spend their money. So it is not enough to offer just good prices, just good quality, or just good style.

Building a Lifetime Career

TAHARA I had thought Uniqlo was the sort of company that made its employees work pretty hard, so I was surprised to learn that you apparently have four “no-overtime days” per week.

YANAI That’s right. Monday is the only day on which employees can work late if they like, but on the remaining four days overtime is not allowed.

TAHARA And does this work out OK in practice?

YANAI I talk about doing work in a speedy manner. If a person concentrates on work during the day, then in most cases there will be no need for overtime. As I alluded to before, most employees work overtime because their supervisor is staying late too, or because they’re single and have nothing much to do when they get home and would rather stay at the workplace.

I originally came up with the idea of a no-overtime day upon realizing that the longer commuting time in Tokyo of an hour or an hour and a half–compared to the ten or fifteen minutes elsewhere in Japan–meant that employees who worked overtime and then had to get up early the next morning ended up being physically exhausted or having problems at home. It just seemed wrong for a company to end up making its employees unhappy, so I introduced this system.

TAHARA You have been quoted as saying that the worst thing is when employees adopt a “salaryman” mentality, and that employees who just wait around to receive orders are useless. But if employees just do whatever they like, doesn’t a company end up in a chaotic state?

YANAI That’s why it’s important for all employees to share an understanding of their company’s own fundamental management principles and for there to be a consensus among them regarding its business. As long as employees speak the same language, so to speak, and share the same set of values, then the more of them who take a proactive approach to their work, the better. There would be no point for a company to expand if doing so caused its employees to lose that sense of sharing common ground. Such a company would indeed become chaotic.

First and foremost, the salaryman style of doing things is just not going to be viable in the future. We are in an era now when even those working for corporations will only earn their keep if they act like entrepreneurs by being self-starters and opening up the path to their own future.

TAHARA I see. So do many Uniqlo employees end up leaving the company to start their own businesses?

YANAI Well, that’s not the sort of person we are looking for either. There would really be no point for a company to go to all the trouble of fostering an employee if he or she is seeking self-fulfillment by frequently changing jobs. The best outcome, I think, is for employees to decide to stay with a company throughout their career, based on the feeling of satisfaction that they’re engaged in a business that allows them to grow in tandem with the company.

Doing Business in Bangladesh

TAHARA Many Japanese products are said to suffer from the “Galápagos syndrome” insofar as they are developed to an amazing extent domestically but never catch on overseas. How has Uniqlo managed to avoid this problem?

YANAI Our aim has been to sell good products to all sorts of people throughout the world. In contrast, other companies in Japan are oriented toward selling sophisticated products to a section of the population in economically advanced nations. Here we have the main difference, I think.

You know, the combined population of the advanced countries is around 800 million, while four or five billion people are living in developing nations. The reality for Japanese companies today is that the economies of their target nations have developed so that the companies now find themselves unable to respond and are scrambling to play catch-up.

TAHARA I understand that Uniqlo has recently also entered the Bangladesh market.

YANAI We have partnered with Grameen Bank to develop a social business there.

TAHARA I’ve heard that Grameen Bank has set up a financial business geared to the needs of the impoverished by aiming to make loans to those lacking the usually required collateral. How can that sort of business be practical?

YANAI The business involves lending money to local people in Bangladesh so they can become more autonomous. This is showing them a way to earn, in other words. For our part, we’re teaching local villagers skills related to making and selling clothes as a way of helping them lead more independent lives.

TAHARA Does Uniqlo profit from this business?

YANAI For our business to work out in a country like Bangladesh, we need to sell T-shirts for one dollar.

TAHARA Just a dollar!

YANAI That’s right. This means they have to be made for around 50 cents. But if that can be done the business is viable, because the population of the country is so large. In Bangladesh alone there are 150 million people.

I should also mention that there are quite a lot of people in Bangladesh who do not even have one suit of clothes. The lack of clothes may mean that a person cannot attend school or cause him or her to fall ill. This reality really drives home the original significance of clothes to human life. My view is that companies contribute to society not by throwing money around but rather by having people purchase their products. Nothing would please me more than if our business activities helped improve the lives of impoverished people.

Translated from “Sekai de kasegu ki ga nai no wa, keieisha no taiman da,” Chūō Kōron, November 2010, pp. 26-35; abridged by about one-fourth. (Courtesy of Chūō Kōron Shinsha) [November 2010]

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