FEATURE: Revolutionary change is upon us.

TOKYO (The Japan News/ANN) - In the fiscal year ending March 2016, Itochu Corp. became the top general trading company for the first time, overtaking former zaibatsu conglomerates such as Mitsubishi and Mitsui. Itochu continues to post record earnings. For this edition of “The Leaders” column, which focuses on corporate management and senior executives, The Yomiuri Shimbun spoke with Itochu President and Chief Executive Officer Masahiro Okafuji about the secrets behind the company’s great success. 

 There is a surge of electric cars appearing in the automobile industry, and not even Toyota can ignore this trend. The way banks operate is set for unprecedented change thanks to fintech — financial services that utilise information technology. Progress in artificial intelligence and information technology has caused a revolution in distribution, and trading companies will undoubtedly be affected by it.

The consequences will be serious for a company that fails to adapt. It may even cease to exist. But there are also opportunities. Which directions are consumer needs moving in, and how can added value be produced? Business opportunities must be located and upfront investments made. 

Okafuji became president in 2010, and the company has posted record earnings three times in the past seven years. By the end of fiscal 2016, net profit exceeded ¥350 billion. The company’s stock price has increased about 2.4-fold since he became president.

When discussing business, there is a story I often refer to. 

It concerns a textile company in the Tohoku region that handles fabrics for women’s clothing. It supplies fabric to a luxury women’s clothing brand in Europe. The fabrics it supplies are indispensable to the luxury brand. 

One item of clothing from that brand can cost as much as ¥1.5 million. Therefore, it’s natural to assume the textile company supplies its fabrics at a high price. When asked, they confirmed, “Yes, thankfully we receive a little more than usual, and it can be as high as ¥5,000 per metre.” 

 Let me explain: The fabric costs ¥5,000 per meter. Since three metres of fabric is used to create a garment, the total cost is ¥15,000. But as a designer item of clothing, it skyrockets to 100 times that value. The cost of the material is a mere 1 per cent. Even when you consider the cost of labour and other expenses, that is too cheap. 

 Why do situations like this occur?

In Japan, the price of a product is decided by adding up the cost price, but this is not the case in Europe. There, the price is based on the idea — known as market-in — that a product holds a particular, intrinsic value. 

 The fact that people will buy a product even if it is excessively pricey is testament to the value of the brand. Japanese clothes have buttons that are firmly attached, and the lining is also fixed in place. With European clothes, sometime the buttons come off after only a short time, and the lining is loose. However, European fashion houses are adept at creating allure. That is why prominent brands like Hermes continued to appear, and they have great added value attached. 

It doesn’t stop at the textile industry. The consumer electronics industry faces the same issue. Up until 10-15 years ago, the televisions that could be found in the guestrooms of Europe’s finest hotels would invariably be made by Panasonic, Sharp or Sony. South Korea’s LG and Samsung Electronics, which used to be treated as inferior, are now accepted as major brands. But Japanese components are inside. What is being held in high regard is the design or the brand. At some point, South Korean companies displaced Japanese companies in terms of having a high-class image. Yet Japan is still overwhelmingly better on the technological front. And because Japanese marketing efforts are weak, we have wound up in the present situation. 

Loose, old-fashioned pants? What factors make the difference?

I think it lies in the power of imagination and the daily practice that produces it. 

Okafuji has teamed up with a succession of businesses, such as Armani, to build up a branding business. At one time, his house was filled with hundreds of suits and jackets.

But this is not limited to fashion. If you have an interest in various things, including trends, you will have an abundance of ideas. Conversely, you will miss business opportunities if you do not extend your feelers farther afield. 

Trading companies do not make anything physical. They engage in transactions and organising projects. In those endeavours, the question of how to create a structure to generate added value is the key to success. Paying attention to trends also counts as a form of training. And this is not just restricted to fashion, but also to trends in food, housing, and all matters in life. 

With a car, for instance, things like how smoothly it handles, what the ride is like, and the interior design will all dramatically affect sales. 

The same holds true for products sold at convenience stores. If the packaging of an own-label product is superb, it will make the contents seem all the more delicious. At the end of the day, the merits of a product remain unknown until someone actually picks it up and purchases it. 

What do consumers want right now? What will come into fashion in the future?

It is important to refine sensitivity to such things every day. At Itochu, a suggestion by an employee interested in a low carb diet led to the development of a partnership with the sports gym, Rizap.

There are still people who wear those loose silhouette pants that came into fashion a long time ago. When you ask them why they’re wearing such an old style, they say, “Because they’re comfortable and easy.” But that’s bad. The current trend is to achieve a slim shape. When you wear tight pants, they’re so constricting and feel as if they will burst, but it makes you look young and active. When I see an elderly person wearing skinny jeans, I’m impressed by their spirit. 

Meetings are meaningless 

Okafuji proposes “health and productivity management,” which takes the lifestyles of employees into consideration. For employees who have been diagnosed with cancer, the company has launched support measures for balancing cancer treatment and work. It is also promoting a morning-focused work system, for employees to get to work by 8 a.m.

A former subordinate passed away due to cancer. I was shown a family photo taken two days before their death, and it pierced my heart. This was my motivation for creating support measures for balancing cancer treatment and work. If you are supported by everyone, you can continue to work, and the families that are left behind can live with peace of mind. Is that not the right thing for a company to do? 

 Another initiative I have promoted since I took office is the morning-focused work system.  I believe that few of the employees who have lots of overtime are competent. Overtime doesn’t stop there, either. People who have worked overtime tend to go for a drink afterward. Then, they end up drinking too much and are of little use at work the next day. Their immune system also becomes weaker. 

 It is better to work early in the morning in a refreshed state of mind. So, if employees get to work by 8 a.m., they receive extra pay. And we also arrange breakfast.  However, this is not a measure to make it easy on people. A company is not a charity, after all. It is an initiative to increase productivity. 

In short, there is no need to worry at our company, since, in addition to guaranteeing an environment in which employees can work efficiently and healthily, the company also looks after families. We therefore expect employees to work more, for which they will be recompensed appropriately. 

The current share of consolidated companies reporting profits has risen to 86 per cent — the highest rate in the industry — from the about 72 percent seen in fiscal 2009 before Okafuji took office. He is promoting work efficiency.

I spent a long time working in the Osaka head office. At that time, I was concerned about the inefficiency of the Tokyo head office. For example, there were many meetings, and it was time-consuming for employees to write up documents all the time. 

Supposedly, companies say they will reduce meetings, but in general, company presidents like meetings. If they have any misgivings about the business, it is easy to call a meeting or say, “Come on.” 

But they are meaningless. It takes time to prepare boring documents and write up the minutes, during which time the company ceases to function.   Therefore, I endeavor to make sure work discussions are efficient. I tell the executives not to come to my office to discuss every trivial little thing, but to send me an email, instead. 

Masahiro Okafuji

President of Itochu Corp.

Okafuji was born in Osaka Prefecture in 1949. After graduating from the faculty of economics at the University of Tokyo, he joined the company in 1974. At the Osaka head office mainly, he was involved in the textile and fashion business, demonstrating his skill by bringing in world-famous brands. He became company president in 2010, and is involved in various kinds of internal reforms, including a morning-focused work system. This year, he won the Japan Best Dressed Eyes Award.