Conference on Competitiveness 2024 | Japan Shows Its Strengths

For Hitotsubashi ICS | Jody Ono

Uniqueness and differentiation in Japan's business sector are celebrated each year at the Conference on Competitiveness, where winners of the Porter Prize Japan receive their awards in festivities organized by Hitotsubashi ICS, Hitotsubashi University Business School in downtown Tokyo.

The Porter Prize, named after strategy professor and author Michael E. Porter of Harvard Business School, was first conferred in Japan in 2001. The Porter Prize Selection Committee selects the winning companies or business units, who demonstrate a proven record of business achievement and maintaining superior profitability in a particular industry by implementing unique strategies based on innovations in products, processes, and management practices.

Announcing the 2024 Porter Prize winners

The 2024 winners of the Porter Prize reflect the rich diversity of Japan's business sector. Listed in alphabetical order, they are: Advantest Corporation, a manufacturer of semiconductor test equipment, Hulic Co., Ltd., a real estate holding, leasing, sales and brokerage company; Isowa Corporation, a manufacturer of corrugated machinery; and Japanet Holdings Co., Ltd., a mail order and TV shopping company.

Honoring Strategic Excellence: Insights from the Porter Prize Award Ceremony

The Porter Prize Organizing Committee and Hitotsubashi ICS express deepest gratitude to the event sponsors, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. and KPMG FAS Co., Ltd., for their engagement and support. 

Professor Emi Osono, Hitotsubashi ICS Dean, opened the award ceremony with a warm welcome to a large audience of business representatives from across diverse industries, the Porter Prize Organizing Committee, Hitotsubashi ICS faculty, students, and alumni, and the prizewinning companies' leaders and team members. To frame the day's discussions, Osono reminded the room of an important distinguishing feature of competitive strategy: a good strategy makes a change, sets a new status quo in the business, so impactfully that reversion isn't possible. In winners of the Porter Prize, we see a commitment to a novel way of doing the business, and a flexibility in its application that allows for continuous innovation.

Professor Mikiharu Noma further elucidated for the audience the prizewinner selection criteria. These include two rounds of screening for uniqueness of the value proposition and particular activities to deliver the strategies, reasons behind such unique selections, and background of the profitability, ROS (Return on Sales) and ROIC (Return on Invested Capital).

Reflections on Growth and Innovation: Insights from Porter Prize Sponsors

Speaking on behalf of Porter Prize Japan's lead sponsoring companies were Hikaru Okada, Partner at KPMG FAS Co., and Kensaku Bessho, Member of the Board of Directors, Deputy President at Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.

Okada observed that as the value and value creation of Japanese companies are now under heavy global scrutiny, we must think critically about what metrics tell us. Many listed companies are making progress in improving PBR (Price-Book Ratio). Yet, Okada urged companies to focus on both factors of PBR: not only on their ROE (Return on Equity), a profitability and efficiency indicator, but also on their PER (Price Earnings Ratio), a growth indicator. A strong PER is an indicator of business development and innovation, and strengthens market position. Okada noted that the winners of the Porter Prize have high PER relative to their competitors. In the future, the gap between high PER and low PER companies will widen if low PER companies don't act to address their growth potentials while overcoming higher inflation and labor shortage. Okada concluded his remarks by emphasizing that high PER companies not only return more to shareholders - they reward other stakeholders too.

Bessho shared remarks on Japan's business outlook. Recent changes in the external environment have affected Japanese companies' behavior, leading to improved capital efficiency, increased returns to shareholders, and strengthened governance. On the other hand, the cautious stance towards growth investment and the reinforced supervisory function of external boards of directors may ultimately curtail growth investment by Japanese companies, bringing lower EPS growth rates and lower ROE compared to global peers. Bessho recalled that he had foreseen Japan's 2024 as an important inflection point for increased shareholder activism, MBOs, dissolution of cross-shareholding arrangements, and an advancing labor shortage. Indeed, all of these came to pass and, he expects, are likely to intensify still more during 2025 as a new normal.

Embedding Ethics in Strategy: Keynote Insights from Professor Takashi Nawa

Takashi Nawa, Visiting Professor, Hitotsubashi ICS and author of several well-known books on Japanese management, offered the event's keynote speech. Drawing from his most recent book, Ethics Management (2024, in Japanese), Nawa encouraged leaders to connect, assiduously, corporate purpose to ethical decision-making, as well-established tradition in Japanese management practice instructs. In a similar way to values, ethics are what guide us as we serve our purpose. A sound ethical foundation will consist less of rules to follow, which are more often the domain of compliance, but more of principles to guide and inform decision-making. Nawa pointed to companies with strong traditions of keeping ethical principles close to hand: Disney's 5 Keys, Johnson & Johnson's Credo, Takeda's Takeda-ism, and Kyocera's "Do what is right as a human being" are helpful examples.

Nawa urged companies to apply such principles concretely, practicing discipline and good judgement in their business decision-making, in serving their stated purpose. Principles-based decision-making will shape and reinforce a forward-thinking spirit in a company. Management pitfalls such as the "thousand flowers disease" (where companies get many business ideas to "bloom," but very few break through to scale), siloed operations, and slow growth all inhibit competitiveness. But a company's culture - the realm of purpose, values, ethics and associated principles of behavior - is most difficult to change once unhealthy norms and expectations take root. Nawa closed by encouraging business leaders to keep aware not only of tangible assets such as the financial and physical, but also of intangible assets such as passion and spirit.

Exploring Strategic Uniqueness: Fireside Chats with Porter Prize Winners

Hosted in fireside-chat style by Specially Appointed Professor Ken Kusunoki of Hitotsubashi ICS, the audience was then treated to a series of lively conversations with leaders of each of the four winning companies in turn. As uniqueness is at the heart of successful strategy, so it was too throughout Kusunoki's interviews with the prizewinners. Below are a few highlights.

Advantest Corporation

Advantest is a manufacturer, seller, and developer of semiconductor and component test systems, and provides maintenance and after-sales services to its customers. The company has been able to far outperform the competition in terms of sales by leveraging four main strengths: leading the steady evolution of testing equipment, advancing leading-edge technologies and establishing relationships with semiconductor companies, including startups; promoting the modularization and platformization of its devices to ensure expandability and compatibility; building capabilities for both cross-regional and cross-departmental collaboration, achieved primarily through the acquisition of companies through cross-border M&As; and being a "one-stop shop" for test solutions.

Talking with Mr. Koichi Tsukui, President and Group COO, Representative Director and Senior Executive Officer at Advantest, Kusunoki asked how the company has been able to stay efficient given the wide diversity of customers it serves. Tsukui explained that Advantest's one-stop testing capability for wide range of products does entail operational costs, but the platformization of their testing capabilities has created an ecosystem that can accommodate a fast-evolving and diversifying customer base. It's an industry that sees continuous innovation and new entrants, and with its encompassing expertise, Advantest has built a strong vantage point from which to perceive and respond to these. Going forward, he expects that since semiconductors themselves are becoming more complex, Advantest will keep leading in the market by building out the testing and data collection architecture to handle that complexity.

Hulic Co., Ltd.

Hulic is in the B2B real estate business, focusing on medium-sized office buildings located within a five-minute walk to train stations in Tokyo's central wards. Most tenants are SMEs, and thanks to Hulic's deep customer base and convenient locations, building vacancy rates are consistently low. Hulic has earned top environmental and disaster response performance ratings. The company uses productivity per employee as one criterion in investment decisions, as part of their strategy to minimize engagement in peripheral businesses; another criterion relates to demographic changes. As another point of competitiveness, the company places great importance on speed in investment decisions. Hulic's relatively small team of professional personnel, working from easy-to-understand strategies and clear decision-making criteria, make quick investment decision-making and action possible.

To Hulic Chairman and Representative Director Saburo Nishiura, Kusunoki pointed that Hulic's strategy is very different from that of other companies in the Tokyo real estate space. Nishiura acknowledged that understanding "what Hulic is not doing" is the key to understanding its strategy. Tenants of its properties are mainly small or medium sized companies, who are not in the very large-scale, more traditional B2B market. A central driver in Hulic's strategy is its effort to reflect the experiences of people amid changing demographic and workstyle landscapes. Especially in recent years, the company's accurate reading of these has brought rewards: smaller spaces, conveniently located and easily accessible are features that are responsive to more flexible lifestyles and workplaces. Going forward, Nishiura remarked, Hulic's strategy will continue to be informed by societal trends and realities like Japan's super-aged population and related caregiving needs, advancing shift to double-income families, and increasing criticality of environment and power generation considerations.

Isowa Corporation

ISOWA specializes in the development, design, manufacturing, sales and maintenance of corrugated machinery, and is a leader in the segment of small-lot, high-speed machines. The main feature of its competitive strategy is its preventive and planned maintenance services.

In his conversation with Kusunoki, President and CEO Hideyuki Isowa told the story of his company changed well-established but outdated norms in its industry. For many years, it has been common for the customers to continue using machines until they break down, and then call a machinery manufacturer such as ISOWA to have them repaired right away. However, sudden machine stoppages cause a huge loss of opportunity for the customers, and emergency maintenance is a huge burden for ISOWA as well. ISOWA believes that reducing sudden machine stoppages will make both customers and itself happier, and began to advocate preventive maintenance. To support a shift of "mindset" among its customers, ISOWA has changed its service fees. Previously, the service hourly rate charges were based on the day of the week and the time of day (lowest during regular business hours on weekdays, highest on holidays) as a matter of industry convention. That means emergency maintenance was the most inexpensive and preventive maintenance, which are usually planned on weekends when the machine is not in operation, was the most expensive. ISOWA has raised its service fees for emergency maintenance, and lowered them for scheduled repair and maintenance, regardless of the day or time.

Customer satisfaction with field service is highly dependent on the quality of personnel, and ISOWA has been reforming its corporate culture ahead of its focus on preventive and planned maintenance services. The audience learned the company spends great effort to ensure an empowering team culture. Regular and inclusive discussions of company values engage employees at all levels. They can proactively think and act to satisfy customers on their initiative, and has created the organization made up of colleagues who share "fairness and justice" as a core value. Isowa's own diary blog, where he has been writing for almost 20 years every day about the company, his family, management challenges, and more, has become a valuable tool not only for the employees, but also for customers, suppliers, local residents, and even students who are interested in working for ISOWA, in learning about the company and his own philosophy and values.

Japanet Holdings Co., Ltd.

Japanet is a leading mail order (mainly for household appliances) and TV shopping company. It also offers a variety of services, such as water deliveries and dispensers, food distribution, and a cruise business. Its points of uniqueness are many. First, Japanet offers "best option" products in each product segment. The assortment offered is smaller compared with large-scale retailers, but Japanet carefully and thoughtfully curates its product offering for its customers, and limiting the number of products carried keeps prices lower. Japanet also has a multichannel communication strategy, intentionally reaching customers via commercials and advertisements which they produce in-house to maximize market responsiveness. Japanet provides exceptional convenience for customers, who build confidence in the company through interactions about products with company reps via phone and email, who will explain and answer questions post-purchase. And, customers can complete all transactions from home.

The equally fascinating story of Japanet came to life in the discussion between Kusunoki and company President and CEO Akito Takata. Asked about the nature of the mail-order and TV-shopping business, Takata noted that when people use their service, it is with intention to buy, not browse. If, however, customers are unhappy with their purchases, this mode of shopping becomes a negative experience. To avoid this happening, access to useful information, operating support and repairs is key to preserving a robust customer following. Japanet's high-quality call centers fulfill this role and build trust among its shoppers. "We trust in what our customers tell us, and believe in their complaints and claims," explained Takata. For these reasons, Japanet places great importance on the quality of their product selection, which they refresh each year. As for future trends, like the other prizewinner Takata underscored the importance of service alongside products and sales - and in all of these, the differentiating role that quality can play.

Showcasing Excellence and Adaptability in Japan's Business

Each of the four winners of Porter Prize 2024 illustrate not only the achievement and practice of unique, innovative, and value-creating strategies. They also possess and illustrate the best qualities of Japan's business sector: the willingness to commit fully as a company by carefully and consistently engaging team members in their strategies, and the mindful integration of the conduct of business with accelerating changes in society. As transitions advance in Japan's corporate sector, relating for example to the super-aged society, greater fluidity in the labor market, a more diverse workforce, new approaches to work and career among the young generation, and global concerns adding both complexities and expectations, we are heartened by the example that each contributes to the world.