Japanese donates successful company due to lack of successors – 04/14/2023 – Market

Hidekazu Yokoyama has spent three decades building a thriving logistics company on Japan’s freezing northern island of Hokkaido, a region that supplies much of the country’s milk.

Last year, he decided to give it all away.

It was a radical solution to a problem that is becoming increasingly common in Japan, the country with the oldest population in the world. As the country’s birth rate has plummeted and its society has aged, the average age of entrepreneurs has risen to around 62. Nearly 60% of Japanese companies report that they have no plans for the future.

Although Yokoyama, 73, was feeling too old to stay in business any longer, quitting was not an option as many farmers had come to depend on his company.

“I definitely couldn’t walk away from the business,” he said. His children, however, were not interested in running it. Neither do your employees. And few potential homeowners wanted to move to the faraway, icy island.

So he posted a notice on a platform that helps small business owners in far-flung locations find someone to take over. The selling price? Zero yen.

The Yokoyama problem represents one of the most devastating economic impacts of aging Japanese society. It’s natural for many small and medium-sized businesses to go out of business as the population declines, but policymakers still fear the country could be hit by a wave of closures as elderly owners retire en masse.

In 2019, a pessimistic presentation by Japan’s Ministry of Commerce projected that by 2025, as many as 630,000 profitable businesses could go out of business, costing the economy $165 billion and up to 6.5 million jobs.

With Japan’s economic growth already flagging, officials swung into action in hopes of averting a catastrophe. Officials have initiated campaigns to educate elderly homeowners, showing them options for keeping their businesses alive after retirement and creating services to help them find buyers.

To draw the lure, authorities offered large subsidies and tax breaks to new owners.

While buyers turn up for the most interesting businesses, it seems nearly impossible for many small but economically vital businesses to find someone to take over.

In 2021, government help centers and the top five mergers and acquisitions services found buyers for just 2,413 companies, according to Japan’s Ministry of Commerce. Another 44,000 were abandoned. More than 55% of them were still profitable when they closed.

Many of these businesses were in small towns, where the succession problem can be an existential threat. The collapse of a business, whether a major local employer or a village’s only grocer, can make it even harder for these places to survive the steady attrition of an aging population and the flight to cities that deplete the countryside.

After a government-run program failed to find someone to take over Yokoyama’s business, a bank suggested he look to Relay, a company based on Kyushu, Japan’s main island, farther south.

Relay differentiated itself by appealing to potential buyers’ sense of community and purpose. Its listings, featuring beaming owners opposite sushi restaurants and bucolic countryside, are designed to appeal to harried big-city dwellers who dream of a different lifestyle.

The company’s task was not easy in the case of Yokoyama. For most Japanese, the city where his company is based, Monbetsu, which has about 20,000 people and is shrinking, could very well be the North Pole. The only industries are fishing and agriculture, and most of them go into hibernation as the days grow shorter and snow piles up on the roofs. At the height of winter, some tourists come to eat salmon and scallops roe and see the blocks of ice that cling to the city’s modest port.

As local farmers have aged and their profits have declined, many of them have come to depend on Yokoyama for tasks like harvesting hay and shoveling snow. His days start at 4am and end at 7pm. He sleeps in a small room behind his office.

It would be “extremely difficult” if his business failed, said Isao Ikeno, manager of a nearby dairy cooperative that has embraced automation as it has become harder to find workers.

On the cooperative’s farm, 17 employees tend to 3,000 head of cattle, and Yokoyama’s company fills in the gaps. No other company in the area can provide the services, Ikeno said.

Yokoyama started thinking about retiring about six years ago. But it was unclear what would happen to the company.

Although he ran up just over $500,000 in debt, years of generous economic stimulus policies kept interest rates very low, easing the burden, and the company’s annual profit margin was around 30%.

The ad he placed in Relay acknowledged that the job was difficult, but said there was no need for prior experience. The best candidate would be “young and willing to work”.

Thirty queries were made. Among those interested were a married couple and a representative of a company that was planning to expand. Yokoyama chose an underdog, Kai Fujisawa, 26.

A friend of Fujisawa’s showed him the ad on Relay. He immediately got into a car and showed up on Yokoyama’s doorstep, impressing him with his youth and enthusiasm.

Still, the transition has not been smooth. Yokoyama isn’t entirely convinced that Fujisawa is the right person for the job. The learning process is more difficult than any of them realized, and Yokoyama’s grizzled, chain-smoking employees are skeptical that Fujisawa can live up to their boss’s reputation.

Most of the company’s 17 employees are in their 50s and 60s, and it’s not clear where Fujisawa will find people to replace them when they retire.

“There’s a lot of pressure,” Fujisawa said. “When I got here, I was prepared to do this for the rest of my life.”

Translated by Luiz Roberto M. Gonçalves