TSE magazine 2011 December 2110 TSE magazine 2011 november

Global companies with long-term growth potential are usually companies that have explored BOP business and begun forays into projects targeting the base of the pyramid (BOP). It is also widely perceived that the US and European companies' head start in the BOP business have left their Japanese counterparts trailing far behind. Is this true? Here's a look at some innovative approaches by Japanese companies in developing countries reveal their inherent edge.

by Hideyuki Sugawara

TSE magazine 2011 December ���� TSE magazine 2011 December

Japanese Companies Play Catch-up in BOP Business

About 4 billion people worldwide remain in poverty. Even though a helping hand re-mains extended, they have not had the for-tune of being the target of business. Today, businesses are shifting their focus onto the lower echelons of developing countries, also known as the BOP (Base of the Pyramid). Companies are branching out to explore new markets amid increasing saturation in mature developed markets. Meanwhile, the international community continues to search for effective means to alleviate global pover-ty. The meeting point of these two is found in BOP business. For companies, BOP business involves ap-proaching a group of people who was not even previously considered as targets of business, and this means unearthing a whole new market. Partnerships with people on the ground and continuous innovation to remain relevant as a business are essential for suc-cess. A BOP business will not take off with-out patience and continued nurturing after understanding local needs and sowing the seeds of a business. The initial stages are endless toil with scarce reward. This means the companies ca-pable of taking on such a challenge are lim-

ited to those with a long-term view to cor-porate growth and sufficient backing by rich management resources with a firm corporate vision. In other words, companies that have explored BOP business and begun forays into this area are global companies with growth potential. Armed with a clear vision of their futures, they already have a foot in the door of the BOP market. It has long been understood that, in terms of participation in BOP business, US and European companies have a head start on their Japanese counter-parts. Actual write-ups on BOP business even perceive Japanese companies' response to such business as "passive." Since the concept of BOP business did not originate in Japan, time is required for Japa-nese companies to fully understand its un-derlying values and motives. If they ap-proach this by learning in the footsteps of their US and European counterparts, it is natural that they can only play catch-up. However, putting aside this view for a mo-ment, a search for Japanese companies target-ing the base of the pyramid in developing countries reveals the trails of challengers who have explored the BOP business concept long before it gained popularity. There are also de-finitive signs that despite the lack of a coher-ent BOP business concept, its beginnings can be found in Japanese companies.

Adopting a 1-coin Sales Strategy since 1970 - Ajinomoto Co.,Inc.

Some Japanese companies have expanded their business in developing countries based on an approach which preempts BOP busi-ness. Of course, these companies did not set out with the goal of developing the concept of BOP business. Based on a clear mission and corporate philosophy, their determined pursuit of results in line with their core busi-ness led them to cater to the poor, fostering an enduring partnership. They are living proof of the continued strength and rele-vance of the twin philosophies of "a corpora-tion as a social institution" and "co-existence with society." Ajinomoto Co. Inc. (Ajinomoto) is one of the typical examples. Ajinomoto's core busi-ness is producing seasoning for food prod-ucts. It began overseas operations in 1910 with the philosophy of seeking "to create better lives globally by contributing to … food and health and by working for life." To-day, its 118 offices span 22 countries and re-gions, employing close to 27,000 people, of which more than 40% are based in develop-ing countries. Ajinomoto is intensifying its activities in western Africa and seeks to expand its busi-ness in Southeast Asia. To achieve this, it has

adopted a unique "1-coin sales campaign" strategy. When Ajinomoto entered the South-east Asian market in the 1970s, there were no distribution channels for its products to reach their target audience, which included the low-income sector. In order to overcome this situation, they established a group dedi-cated to direct sales to move and sell their products. They created products, which were "easily affordable to everyone" that could be bought with the lowest denomination in the local currency - a single coin. In a drive to localize all business aspects, Ajinomoto expanded local sales staff to ap-proximately 3,500 members who traveled to each and every shop in the outlying regions, bringing along sample sachets and providing after-sales service. In November 2010, Ajinomoto announced the start of a project to improve nutrition in Ghana in cooperation with international NGOs, CARE International Japan and Plan Japan. A soft porridge of fermented corn or keyken is traditionally fed to weaning Gha-naian children. Lacking energy content, pro-tein, and micronutrients, this dish was found to be the main factor for delayed growth in children during weaning. The project aimed at applying the compa-ny's knowledge of amino acids to develop food additives containing enhanced nutrients

for this Ghanaian porridge. These days many Ghanaian women from all walks of life are contented patrons. If the product proves suc-cessful in Ghana, Ajinomoto will consider rolling it out across western Africa.

An Astonishing Approach to Creating Distribution Channels - Fumakilla Limited

Let's take a look at another success story of patience and perseverance in a local mar-ket. After entering the Indonesian market in 1990, Fumakilla Limited (Fumakilla) took 20 years to finally capture a 25% share in the mosquito coil market in 2010, emerging as the top brand among competitors Bayern (Johnson & Johnson) and King Kong (Indo-nesia). It was not all smooth sailings from the start. Fumakilla faced an uphill struggle to maintain its product image of quality and safety with a pricier alternative to rival prod-ucts. A breakthrough in this predicament came with a move toward localization. Production lines quickly warmed to an initiative to im-prove group productivity, reducing overall production cost by 7%. Product development also focused on understanding local demand and conditions to create products suited to

the local market. In particular, a fully area-focused sales strategy launched in 2008 reaped huge re-wards. This strategy involved targeting sev-eral specific neighborhoods, the lowest ad-ministrative unit in Indonesia. Each neighborhood was subjected to concentrated sales efforts by 3-person sales teams over a period of three months. The teams would visit every small stall, known in the local language as warung, which usually served about 100 people. While a salesperson negotiated with the warung about selling Fumakilla mosquito coils, two other female colleagues would dis-tribute samples to nearby households. Today there are 47 teams going to 50 warungs a day. Each team visits an aggregate total of 1,250 warungs, bringing the 47-team total to 58,750 warungs. There are about 2.3 million warungs scat-tered across Indonesia. Of course, it is never enough to approach a warung just once. The main idea behind the area-focused strategy was to visit the same warung at least once a month during the three-month period to firmly establish a distribution channel for Fumakilla products. Mosquito coils are a typical product made for the BOP. Most of its sales are through the small but numerous warung. Growth in over-all market share cannot be achieved without

This is Ajinomoto's mission : New Market Development!

"Fumakilla" is deploying an area-focus strategy in Indonesia.

We have made the following factors a reality for our customers. ■Affordable　Anyone can purchase our products with ease. ■Available　Our products are available everywhere. ■Applicable　We emphasize that our products can be used to improve any dish.

Ajinomoto seasoning sold primary in Asia (Indonesia retail store)

The start of a project in Ghana to improve the nutritional value of porridge for infants

Staff develop sales channels by visiting each of the 2.3 million warungs, or small stalls.

Sales staff negotiating at a warung about Fumakilla mosquito coils

Sales staff distributing samples to local residents

TSE magazine 2011 December 2524 TSE magazine 2011 December

increasing the number of warung displaying the product and expanding the product's share in each warung at the same time. The answer to this peculiarity of the Indonesian market was the area-focused strategy. In the face of an overwhelming expanse of more than 2 million stalls, the decision to embark on low-key "door-to-door visits," the steadily growing rewards of this approach, and the stance of emphasizing efforts on the ground exhibits the strengths of not only Fu-makilla but also Japanese companies.

Japanese Companies are Well-equipped for BOP Business 　All in all, Japanese companies struggling to find business opportunities overseas have recently begun shifting their focus to the BOP approach. For example, we see some companies chancing upon new opportunities and relationships due to their long-term local presence, allowing them to launch BOP busi-nesses. Yamaha Motor Co., Ltd. (Yamaha) has been selling outboard motors in Africa for more than 30 years. A fortuitous meeting with MECZOP, a Belgian NGO active in agricultural support activities in Senegal re-sulted in the germination of a business model

combining Israeli "Dripping Irrigation" agri-cultural technology and Yamaha pumps. De-spite being costlier than Chinese pumps, dur-ability and sound maintenance and support services meant the device slowly gained popularity among farmers. There are also others who have turned to the BOP for a new approach to off-shore production. Yukiguni Maitake Co., Ltd (Yu-kiguni) mass produces and sells mushrooms and beansprouts, as well as processed food and health products. Yukiguni set up a joint venture company, Grameen Yukiguni Mai-take Co., Ltd. (GYM), in Bangladesh with Grameen Group to cultivate mung beans in villages and sell 30% of the harvest locally. The remaining 70% is exported to Japan as raw material for bean sprouts. In the coming fiscal year, it aims to harvest 1,000 tones in 1,000 hectares and create about 2,000 to 3,000 jobs. In the next 3 to 4 years, GYM aims to harvest 10,000 tones, equivalent to about 20% of annual Japanese consumption, and hopes to create 30,000 jobs for villagers. News of this business reached the office of JICA (Japan Interna-tional Cooperation Agency), Private Sector Partnership. GYM has since been selected for the JICA's BOP business collaboration project from which they will receive funding

in the region of 50 million yen. The success stories of Japanese companies share the fol-lowing five points.1. Clear corporate philosophy2. Dedication to the mission 3. Long-term view4. Emphasis on localization5. Excellent technology, products, and services The sense of mission to "benefit not only buyers and sellers but also society" is inher-ent in the corporate philosophy of many Jap-anese companies. This mentality is the crys-tallization of the wisdom of Japanese merchants from a past era more than 250 years ago that remains strong today. It no doubt serves as an inner strength on which Japanese companies draw upon when doing BOP business. Employees posted overseas to take charge of BOP business have no objections to local-ization. Indeed, it is Japanese companies which are known for their capacity to im-prove operations by listening to feedback from the ground. Japanese companies have also begun to recognize the need to reassess today's rapidly changing international environment with an open mind. The marked change toward a greater focus on BOP business is the result

of this changing perspective. So, the next time you are posed with the question, "Are Japanese companies latecom-ers to the BOP business scene?" you will know that Japanese companies have actually played a role in developing its business con-cept and are well-equipped to participate in the BOP field.

Hideyuki Sugawara is currently working for Stanford University as a visiting faculty member to conduct his research in the field of innovation studies. In Japan, he works for Hokkai-Gakuen University as a professor of International Busi-ness. He has just published a book entitled “Introduction to BOP business.”

Ajinomoto Co.,Inc.[ Foods ]

Founded in 1909, Ajinomoto is one of the representa-tive companies of Japan's food industry. A pioneer in "monosodium-glutamate industrialization", its wide-ranging business includes foods, seasonings, pharma-ceuticals, and amino-acids. Ajinomoto Group has de-ployed business in 22 countries worldwide (products are sold in 130 countries).

Hideyuki Sugawara

Yamaha Motors contributes to African agriculture with"dripping irrigation"using Yamaha pumps.

Yukiguni Maitake established a joint company with Grameen Group

in Bangladesh to cultivate mung beans used for bean sprouts which

are then exported to Japan.

http://www.ajinomoto.com/

Sales

1,207,695

1,220,000 71,000 72,000 38,000

'11.3

'12.3*

'11.3

'12.3*

(￥Mil.)

69.374 30,400

OperatingProfit

OrdinaryProfit

NetIncome

70,499

Dividendper share

ROE(%)

ROA(%)

Earningsper share(￥)

43.56

55.77 16

16 5.0 2.8

TSE/2802 Bloomberg/2802:JP REUTERS/2802.T Shares Issued (Nov.4 '11) : 678,980,654 shares Round lot : 1,000 shares

Fumakilla Limited[ Chemicals ]

Founded in 1890, Fumakilla Limited. produces gardening insecticides, and antibacterial products, specializing in mosquito repellants. With a history of innovation, Fumakilla produced "Vape", the world's first electric anti-mosquito device. It is pro-actively engaged in overseas expansion in Indone-sia, India, and Mexico.

http://www.fumakilla.co.jp/global/

Sales

23,473

23.280 780 860 380

'11.3

'12.3*

'11.3

'12.3*

(￥Mil.)

633 287

OperatingProfit

OrdinaryProfit

NetIncome

638

Dividendper share(￥)

ROE(%)

ROA(%)

Earningsper share(￥)

8.98

11.57 10

10 3.97 1.37

TSE/4998 Bloomberg/4998:JP REUTERS/4998.T Shares Issued (Nov.9 '11) : 32,980,000 shares Round lot : 1,000 shares

Yamaha Motor Co.,Ltd.[ Transportation Equipment ]

Yamaha Motor Co., Ltd. was founded in 1955 and is currently ranked 2nd in the world in their core motor-cycle business. Outboard motors manufactured by Yamaha are used in over 200 countries and regions. On the retail front, it has been focusing on market develop-ment and sales expansion in emerging countries, while developing next-generation power sources ("smart power").

http://www.yamaha-motor.co.jp/global/

Sales

1,294,131

1,350,000 68,000 78,000 35,000

'10.12

'11.12*

'10.12

'11.12*

(￥Mil.)

51,308 18,300

OperatingProfit

OrdinaryProfit

NetIncome

66,142

Dividendper share(￥)

ROE(%)

ROA(%)

Earningsper share(￥)

55.50

100.26 20

0 7.52 1.86

TSE/7272 Bloomberg/7272 : JP REUTERS/7272.T Shares Issued (Nov.4 '11) : 349,757,784 shares Round lot : 100 shares

Yukiguni Maitake Co.,Ltd.[ Fishery, Agriculture & Forestry ]

Founded in 1983, Yukiguni Maitake Co., Ltd. is pri-marily engaged in the production, processing, and sale of mushrooms. It now occupies 60% of the Japanese maitake mushroom market. Yukiguni Maitake grows enoki mushroom in China's Shanghai and Sichuan province, and has established a maitake mushroom plant in New York state where it plans to begin opera-tions in March 2012.

http://www.yukigunimaitake.com/

Sales

26,520

31,000 1,400 1,000 900

'11.3

'12.3*

'11.3

'12.3*

(￥Mil.)

1,488 700

OperatingProfit

OrdinaryProfit

NetIncome

906

Dividendper share(￥)

ROE(%)

ROA(%)

Earningsper share(￥)

19.11

24.85

*Forecast

10

10 9.93 1.93

TSE/1378 Bloomberg/1378 : JP REUTERS/1378.T Shares Issued (Nov.21 '11) : 36,231,074 shares Round lot : 100 shares