The Key to the Longevity of a Family Business Hõshi Ryokan Case

Więcek-Janka E. (2014), The key to the longevity of family business – Hoshi case, Przedsiębiorczość i Zarzadzanie (ISSN: 1733-2486), t. XV, z. 7, cz. 3, s. 11-27.

Ewa Więcek-Janka

Poznan University of Technology

The key to the longevity of a family business – Hõshi Ryokan case

Abstract:The paper presents the concept of perceiving the family businessin context of shaping relationships and values of areas co-creating its identity, the methodology of shaping the index of a family business value and results of research conducted in the family business with a couple centuries long tradition on an example of Hõshi Ryokan.

Key words:family business, family enterprise, values, the longevity of family businesses, Hõshi Ryokan

1. Introduction

Family business is a natural form of a family and local entrepreneurship, which in favorable circumstances can develop and last for many generations.Estimates of the number of family businesses in Poland and in the world are the subject of disputes between scientists.Some studies define their populations at the level of 90% of all companies operating around the world [Aldrich, Cliff 2003, Short 2012]. Majority of them are micro and small firms, which however etched into the market of medium-sized and large companies [La Porta, Lopez de Silanes, Shleifer 1999]. Most averaged estimates of European stock markets say that 44% of companies listed on them are held by families [Faccio, Lang 2002].

Approach to defining the concept of the family enterprise is related to various theoretical trends as well as the family and business culture of the family enterprises’ environment. Table 1 presents selected definitions of the family enterprise.

Tab. 1. Selected definitions of a family enterprise

Based on individual interviews and literature analysis

Family enterprises, as indicated in the definitions, are defined in two major trends as presented in figure 1.

Fig.1. Identified trends of defining family business

This set of concepts prepared by researchers of the area of family enterprises helps to look at their classification from two points of view:

–building relationship and values – authors underline the importance of relationships between family and business area, where their objectives and activities are interwoven, and business activity is based on values, trust and loyalty of family members,

–supervisory and ownership - the impact of family members on making decisions or influencing them is highlighted.It is also considered whether or not they have the majority shares in the company.

For the purpose of discussion the concept of family business allowing for comprehensive coverage of internal relations is adopted, which reads:a family enterprise is a trigonal market organism, comprising interests of: business, family and individuals, which operates with different but mutually adapted goals, and in its realization, it uses its energy in the long multigenerational perspective through the management and control of its activity and propertyIn this definition the values are:

–business – company development, maintenance (and/or increasing) profit,

–Family – maintaining stability and security,

–individual - the realization of individual values and the free choice of a life path by individuals [Więcek-Janka 2013, p. 35].

The mutual influence of business, family and individual areas on shaping the values of a family enterprise is illustrated in Figure 2

Fig.2. The values of the family enterprise as a resultant of the three areas [Wiecek-Janka 2013, p 87]

The values shaped in all areas of a family enterprise determine its durability and multigenerationality, as they define the mission and vision of its development.The longevity of family businesses is closely related to the succession, which should be understood as a comprehensive process involving all individuals from the family and the company.It is very often associated with profound transformations within the company, so questions regarding its form, the recipient and the time in which it is to happen, are strategic.Sułkowski and Marjański [2009] define the succession as a management of the process of intergenerational change and consider it, like Churchill and Hatten [1987] to be a special and one of the more complex issues of family businesses, because it relates to the company's strategy, HR strategy, organizational culture and the ownership structure [Sułkowski, Marjański 2009, p 37]. Jeżak, Popczyk and Winnicka-Popczyk [2004, p 59] recognize the succession as the developed and implemented strategic plan to pass on the ownership and power of the current owner of the family company to a chosen successor, who will be able to ensure the continuation and development of the family enterprise in accordance with the defined strategy [Gersic, Davis, Hampton, Lansberg, 1997; Safin 2007; Surdej, Wach 2010, Green 2011; Marjański 2012; Arnoff, McClure, Ward 2012; Więcek-Janka 2013; addition, Daugherty 2014]. The primary objective of proper succession is to secure the interest of the company.In the absence of the possibility to maintain the family nature of the company, owners must consider:selling the company, purchasing its shares by the board or selling to the public, merging with another entity functioning in the market, choosing a successor from outside or liquidating the company.Research conducted by the Institute for Family Business [Value Codes - Synthetic Report 2013] showed that 70% of family enterprises [as declared by owners] plans a succession process, 7% is in the phase of searching for a successor, 17% is in the phase of transferring the authority and 5% is in the post-succession phase.

Often, an important intermediary or accelerators of successional change are good practices in the area of succession, which are being increasingly common and find their followers.Very helpful in this respect are becoming institutions, associations and foundations gathering family businesses constituting a platform to exchange experiences, a base for scientific research.

One of the elite worldwide associations is Hénokiens, which focuses on supporting the development of the FBN (Family Business Network) or locally funded scientific association WIFU (Witten Institute for Family Business).However, their objectives are centered around three main issues.The first is building a positive image of the family entrepreneurship.The second is attempting to influence national and international legislation.The third and perhaps the most important is building knowledge about themselves, and then using it for educational purposes, which are addressed to the managers of the discussed enterprises.Associations have a strong impact on building the identity of the family businesses and become the carrier of the organizational culture.Above all, however, they support the development of the family business and significantly increase its competitiveness in a globalized market, which is increasingly dominated by transnational corporations.

2. Hõshi Ryokan – centuries-old family enterprise

Management of company ownership and image is the main task of long-lived family businesses.When the family enterprise is passed on to next generations, the ownership is usually divided between siblings, cousins and their heirs.After several generations the fragmentation is sometimes so large that the control over the company is lost, which could adversely affect its development [Bennedsen, Van der Heyden, 2010]. Fragmentation of ownership has been recognized by the present owner of the oldest family business Zengero Hõshias the greatest barrier to building a multi-generational family businesses.

Around the world there are several dozens of currently operating family businesses with at least two centuries of tradition.One of them is the Hõshi Ryokan company.It was founded in the year 717 in Awazu, a town in the district of Ishikawa as a hotel complex, which used local hot springs with healing properties.Currently, the company is managed by the 47th generation of owners.Each manager realized his mission by an average of 30 years.The enterprise pursued a coherent development strategy for centuries.It currently offers recreational services, biological regeneration and therapeutic massages.

Fig. 3. Logo of the world's oldest functioning family business Hõshi Ryokan.

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A study was conducted with the current owner of the Hõshi company, using the mix-methods:interview and questionnaire.The interview was preceded by several months of negotiations with the owner Hõshi Ryokan with the help of his assistant, Naomi Nishide.

During the interview, the forty-seventh owner answered the questions related to running the family business.Table 2 shows the scope of the interview and the received answers.

Table 2. Compilation of answers received during the interview with the owner of Hõshi company

*Ekiden – long-distance relay [over 500 km].

**Youshi system – Code of Conduct which allows for the preservation and maintenance of elite names.

The interview allowed to notice the profound differences in the perception of the context of the functioning of family businesses with a centuries-old tradition and businesses facing the first succession.Comparison of the results of interviews conducted at Hõshi Ryokan and companies from Wielkopolska[1] region allowed for listing of such differences.Most of them are associated with a different business culture and philosophy of life in Japan and Poland (see tab. 3)

Table 3. Identified differences in the perception of the family business

Source:Więcek-Janka 2013, s.83

Values guiding the multi-generation family companies, defined in the study, [on an example of the Hõshi Ryokan company] are closely related to Japanese culture, exemplified by the Youshi system of reducing the number of people using the name of a great public importance [noble, imperial].Also in this case, only one person – successor of the HõshiCompany - can keep the ancestral surname; other children take the names of families, which they married into.Such restriction increases the prestige of a name and company and eliminates conflicts related to the division of property.

Owner of the Hõshi Ryokan Company, Zengero Hõshi, sees himself as a philosopher of the family business and maintains that such is the role assigned to people like him.Comparison of women to the fire, and men to the water, expresses the balance of jing and jang, attributing women with higher emotions and men with reason.He developed this approach, specifying that women know specific ways of solving problems and using their femininity [variability], they find solution, often final, to problems [their stubbornness can lead to success or disaster].Men, however, are in his view closer to water, which changes its course unnoticed, can be calm as a stream, and sometimes forceful like a waterfall, but always finds a way out and continues on.It is their job from an early age - according to Zengero Hõshi – to watch, learn and apply their knowledge to protect the family business.

Equally interesting comparisons is used by Zengero Hõshi, describing a recipe for multigenerationality of a family business.He compared the family company to Ekiden.It's like a long-distance relay race held from the seventeenth century between the cities of Kyoto and Tokyo, where the number of participants is variable.The concept of a long-distance generation relay is very apt, as indicated by the popular and scientific elaborations published in Poland, for example the Family Businesses.How to achieve success in generation relay [Sulkowski, Marjański, 2009].