Circularity and Japanese family-owned businesses Part 1

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.

To set the stage, it is important to consider a few key figures that underscore the significance of family-owned businesses in Japan. Estimates suggest that they make up over 95% of all businesses and nearly all companies with a history of more than 100 years.

Family-owned businesses are also highly diverse and not necessarily small in scale. Many large corporations listed on the Tokyo Stock Exchange, such as Toyota, Shimano, Sundrug, Sagawa Express remain partially owned or controlled by their founding families. Also, nearly 600 companies on the Tokyo Stock Exchange have been in operation for over a century, with the vast majority being family-owned businesses.

A good way to approach circularity in Japan is by seeing it as a result of the deep connection between a family and its company. The family’s sense of responsibility for the business they own often goes beyond mere ownership or leadership—it is a deep commitment to all the stakeholders.

In many cases, a controlling shareholding is not even a necessary requirement for a company to be considered a family business. Looking a Japanese companies, I observed a unique characteristic that is uncommon in Europe: a company can retain the essence of a family business even when the family owns less than a majority stake, and sometimes even just a small fraction of the capital. (let’s use the term family business in the rest of this article). I have encountered multiple cases where the company's strategy and actions clearly reflect a family business mindset, despite the founding family holding only around 10% of the capital. In most instances, the Chairman and CEO are family members who see themselves not as outright owners, but as stewards of the company. Their long-term vision, particularly regarding circularity, plays a crucial role in guiding the company through time.

Let's turn our attention to Japan’s small and medium-sized enterprises (SMEs). While large family companies frequently receive – well deserved - attention for their sustainability efforts, SMEs are also crucial, albeit often overlooked, contributors to the advancement of circular economy principles.

When addressing circularity, these companies face unique challenges, including limited access to technology, know how, and the financial burden of implementation.

However, family businesses have a distinct advantage in tackling these issues thanks to the ecosystem of partners they have developed over multiple generations. Circular economy initiatives often require strong collaboration across the supply chain, from sourcing materials to end-of-life recycling. Family businesses often excel in this area, leveraging the deep-rooted relationships they have built over generations with customers, suppliers, and local stakeholders.

Because these companies operate with a strong sense of social purpose, they can rely on their broader community for support, both in times of stability and crisis. Over the long term, fostering and maintaining these partnerships—through both prosperous and challenging periods—creates lasting bonds, which can be seen as circularity between companies

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