Circularity and Japanese family-owned businesses Part 2

The Circular Economy is not just an environmental regulation, but is being promoted in many countries as a policy to change the very structure of the economy. How is Japan faring in this context? How does it look to those who, like investors, keep a close eye on economic trends and changes?

 In 'Talk Circular x Economy', Mr. Andre-Hottinguer, who has been involved in investments in global companies for more than 10 years and has travelled back and forth between Europe and Japan, gives his unique perspective on these topics, drawing on his background as an investor and as a foreigner.  Let's enjoy his 'way of seeing' and explore the 'Circularity x Economy

In this second column, we will explore how family-owned businesses approach the concept of circularity, which, in some cases, is central to their business model. Given the diversity of family-owned businesses in terms of size, sector, strategy, and ownership structure, we cannot offer a comprehensive overview. However, we aim to provide examples of how circularity can support their long-term success across generations. In Part 2, I will discuss another reason why circular management is essential for family businesses, following on from Part 1.

Another reason why circularity is essential for family businesses is rooted in the concept of Ie (家), which extends the notion of family beyond those who join through marriage or adoption to include ancestors and future generations. Viewing each family member—past, present, and future—as part of a continuous system reinforces long-term sustainability and continuity.

A family’s legacy and values are deeply intertwined with the company’s operations and success, making reputation management a critical priority. While maintaining a strong reputation among stakeholders is vital for any business focused on longevity, it becomes even more significant when the company carries the family name.

Family businesses often place a significant emphasis on nurturing and developing their employees, viewing them as a vital part of the company’s long-term success. This focus aligns with the modern concept of "Human Capital," where the skills, knowledge, and loyalty of employees are seen as essential assets to the business. In these companies, it’s not uncommon to find, outside of the controlling family members, multiple generations working together, with entire families contributing to the company’s growth. The histories of these employees often intertwine with the family owners, creating a shared narrative of progress and tradition. Over time, the stories of these families are written alongside the company’s own history, reflecting a deep connection between the company and its employees.

Balanced growth and measured risk-taking are also fundamental principles in family businesses. Each generation strives to pass the company on in a stronger position than they inherited it. To accomplish this, expansion is often more prudent compared to other business models, with a focus on sustainability rather than rapid growth. This measured approach allows the company to remain independent from external capital providers, ensuring long-term stability and preserving family control. As a result, family businesses in Japan tend to have an average lifespan twice as long as their counterparts in the U.S. or Europe.

This longevity is not just about business strategy but also about resource efficiency. Companies with a long-term mindset often optimize their use of materials, minimize waste, and find innovative ways to repurpose by-products.

A compelling example of this was shared with me by one of Japan’s oldest sake producers, Gekkeikan (月桂冠) who demonstrated how by-products from the brewing process are repurposed, ensuring that nothing goes to waste while maintaining quality and tradition. During the sake production process, great emphasis is placed on minimizing waste. For example, the fine powder resulting from polishing the rice grains is carefully collected and repurposed by rice cracker manufacturers. Likewise, Sakekasu (酒粕), or sake lees—the residual paste left after the brewing liquid is filtered—is utilized in food production. One popular use is Kasuzuke (粕漬け), a traditional method of pickling and marinating various ingredients, including fish, chicken, and a variety of vegetables. Another one is Kasujiru (粕汁), a miso soup with sake lees and many winter vegetables. In addition, both rice powder and sake lees can be used as animal feed

Similarly, in the soy sauce industry, I learned about soy sauce cake (醤油粕), a byproduct of the soy sauce production process. It is the solid residue left after raw soy sauce is pressed from moromi —a fermented and aged mash made from soybeans, wheat, brine, and soy sauce koji mold. While often used as fertilizer, it also serves as a valuable livestock feed, particularly for cattle, poultry, and pigs, due to its rich content of proteins, minerals, and vitamins. Its nutritional benefits make it a sustainable alternative to conventional feed, reducing waste while supporting the agricultural cycle.

A similar byproduct emerges from soymilk production. When soybeans are boiled, ground, and pressed to extract soymilk, the remaining soy pulp (おから) is produced. Though often discarded, おから is a highly nutritious ingredient, rich in fiber, protein, and essential nutrients. When dehydrated, it can be incorporated into various food products, such as baked goods, plant-based meat substitutes, and even traditional Japanese dishes.

In the next few columns we will explore how specific sectors, such as plastic, construction, food production address circularity in Japan.

Part.1