Tadashi Yanai Before 2003

Tadashi Yanai and Masayoshi Son became the most successful entrepreneurs in Japan after the economic bubble burst in the early 1990s. The two men are close friends. As of May 2019, Yanai served as an external board member of Softbank, the company founded by Son.

Tadashi Yanai was born in Ube City, Yamaguchi Prefecture in 1949 (Showa 24).Footnote 1 After graduating from the School of Political Science and Economics, Waseda University, he joined Ogori Shoji in 1972. The company was established 9 years earlier (in 1963) by his father, Hitoshi Yanai. In 1984, Tadashi Yanai replaced his father as president of Ogori Shoji and started opening stores named Uniqlo, which meant “unique clothing.” The first Uniqlo store opened in Hiroshima City in 1984Footnote 2 and the first “roadside store,” located along major roads, with a large parking space opened in Shimonoseki City in 1985, becoming the protype for later Uniqlo stores.Footnote 3

Tadashi Yanai’s business began to grow around the time he rebranded his company from Ogori Shoji to Fast Retailing in 1991. The company listed on the Hiroshima Stock Exchange in 1994 and on the Second Section of the Tokyo Stock Exchange in 1997. In 1998, the “Uniqlo fleece” with a price tag of 1900 yen became a big hit. In the same year, the Uniqlo Harajuku store opened in Shibuya Ward, Tokyo, the first outlet in the urban center of the Tokyo metropolitan area. The following year, Fast Retailing was listed on the First Section of the Tokyo Stock Exchange.

Tadashi Yanai opened Fast Retailing’s Shanghai office in 1999 to better manage production in China. In 2002, Uniqlo opened a store in Shanghai and began marketing operations in addition to production in China. Uniqlo’s very first overseas foray had been a year earlier in 2001 when it opened a store in London. In 2003, Uniqlo’s cashmere campaign drew much public attention.

Uniqlo Kicks Off the “Made in China” Era

Tadashi Yanai’s business made a great leap with its hugely popular line of fleece products, but the biggest contributor to this success was the establishment of a production system in China. Yasuhiko Hasegawa played a key role in this process, leaving Toray International in 1994 to establish Personal Care Systems Co. and becoming its president.

In a 2016 interview article, Hasegawa looked back at 1994 and described the circumstances in which he served as the bridge between Tadashi Yanai of Fast Retailing and several Chinese factories.

In Japanese business practice, the establishment of a relationship between two parties is solely on a company-to-company basis. The fact that I had worked for Toray meant little, and few would listen to me since I was no longer associated with a major company. The only person who said, “That’s interesting – Let’s do it” was Tadashi Yanai of Uniqlo. Footnote 4

After quoting Hasegawa, the article continues as follows:

Immediately, Hasegawa started negotiating with factories that showed a willingness to take on production for a Japanese company. Sewing factories and fabric makers that had been producing clothing items for leading American apparel brands agreed to payment at the “Uniqlo price” on the condition that their relationship would be long term....

The following year, in 1995, Uniqlo began production at Chinese factories owned by a Hong Kong company that was already doing small-scale work for European and U.S. companies, and this prompted the company’s rapid advance.... After that, Hasegawa appointed himself as the “Uniqlo Preacher” (i.e., Uniqlo evangelist) and went on to cultivate a network of production factories in China.

Hasegawa recalled, “I told them, ‘I don’t need anything in return, but please take a chance on Uniqlo as Yanai is a trustworthy man,’ and completed the deals. To Yanai, I said, ‘The group of companies I would like to introduce to you have been spearheading casual wear production in Hong Kong for Europe and the United States and are deeply versed in fashion. They are especially strong on American casual wear, and their products are among the best in the world in terms of quality and comfort.’ I made such presentations to Yanai and asked him to allow me to work toward the successful alliance.”

Thus, Uniqlo was able to obtain a high-quality, yet overwhelmingly cost-effective production base by partnering with a group of top-notch factories that Hasegawa had cultivated. Starting with around a $1 million investment, Uniqlo expanded its operation, generating a major boom through the release of fleece clothing in 1999. In the same year, Uniqlo opened its first overseas office in Shanghai to handle production management. The company had established a full-scale production system.Footnote 5

The interview concludes with the following statement by Hasegawa:

When we first met, Uniqlo was a company with annual sales of about 25 billion yen, but it quickly grew to 100 billion yen and then to 200 billion yen. Mr. Yanai is a man who truly keeps doing his best every day. That is why he was able to realize this level of success in his own lifetime. The Chinese people to whom I have introduced Mr. Yanai have all come to admire him greatly. Footnote 6

Parenthetically, in the series “Testimonies on Modern Industrial History” published by the “Weekly Economist” magazine from 2003 to 2004, Tadashi Yanai was among the interviewees that included such names as Kazuo Inamori and Toshifumi Suzuki. Footnote 7 I was one of those interviewing Yanai. Here are my impressions of the interview that I later contributed to the same magazine.Footnote 8

The recent influx of Chinese products in Japan is often referred to as a “threat” that will lead to the “hollowing out” of Japanese industry. It is true that Japan-China trade has seen a significant surplus of Japanese imports in recent years. However, when the Japan-China trade balance is recalculated taking into account the export surplus from Japan to Hong Kong, it is clear that with the exception of FY2001, Japanese exports to China have remained in surplus even in recent years. The reality of late is that the “triangular trade” between Japan, Hong Kong, and China has been taking root: Japan is exporting high-value components to China via Hong Kong, assembly is taking place in China, and Japan is importing back the finished goods.

In other words, the influx of Chinese products in the Japanese market reflects the deepening division of labor between the two countries rather than the hollowing out of Japanese industry. Japanese consumers are benefiting from the trend, so the “made-in-China era” can be welcomed.

The Made in China era in the Japanese market began with the Uniqlo brand of clothing products launched by Fast Retailing led by Yanai (hereafter Fast Retailing is referred to as Uniqlo). Uniqlo dispelled the “cheap and bad” image associated with Chinese products and went on to instill in consumers’ minds a sense of trust that Chinese products are “cheap and good.” What emerged clearly through the interview with Yanai was his progressive business model that initiated the Made in China era.

Uniqlo describes its business model as “a manufacturing retailer that provides high-quality, low-priced casual wear brands through comprehensive in-house control over planning, production, distribution, and sales.” At first glance, this business model appears to be no different from the SPA model (SPA stands for Specialty store retailer of Private label Apparel) adopted by others. However, Uniqlo stands out in its active involvement in the production process in China and has literally accomplished “comprehensive in-house control” with the following aspects: (1) it actively recruited Chinese students and trained them to assume important roles before assigning them to production management; (2) it directly interviewed young managers at China’s emerging township and village enterprises (TVEs) and chose suppliers; (3) it selected factories based not only on their size and facilities but also on their managers’ attention to quality control and contract fulfillment; (4) after placing orders to about 140 factories, it pared down the number based on their performance before continuing business relations; (5) Uniqlo focused on becoming the main customer for these factories so that they would handle urgent orders; and (6) for the selected factories, Uniqlo adhered to a long-term vision and expected factories to learn from failure rather than take a short term view and end the relationship. Through these measures, Uniqlo achieved “comprehensive in-house control” over production, and transformed the Japanese consumers’ image of Chinese products.

After the boom generated by the fleece line of products launched in 1999 died down, Uniqlo faced harsh commentary. However, if we look at Uniqlo’s development over a longer period and consider the fleece boom as transitory, we see that Uniqlo has grown steadily, both in terms of sales and profits, and continues to grow. Perhaps the most important factor in the success is Yanai’s character as a “manager resilient to failure.” The title of a recently published book by Yanai is “One Win, Nine Defeats.”Footnote 9 In an interview, he emphasized that making a mistake with a relaxed mindset helps keep the venture spirit alive. Uniqlo has been able to achieve long-term growth without losing the venture spirit precisely because it has a leader capable of dealing constructively with failures.

Yanai’s “resilience to failure” means that he is also “good at exiting.” For example, Fast Retailing launched a food business in 2002 under the brand name “SKIP,” but withdrew 2 years later. One who is good at withdrawing can also launch a sharp offense. Yanai’s risk-taking skill seems to be rooted in his resilience against failure.

Tadashi Yanai Since 2004

After 2004, Yanai continued to rapidly expand his business while making swift withdrawals as needed. First, the company accelerated its expansion overseas, establishing the “Uniqlo Design Studio, New York, Inc.” in the United States in 2004, which later became an R&D center. That same year, FRL Korea Co. was established as a joint venture with Lotte Shopping of South Korea to carry out Uniqlo operations in the country. Then in 2005, the company acquired Aspesi Japan, the sales subsidiary of the Italian clothing brand Aspesi. However, Uniqlo withdrew from the [Aspesi] business in 2008.

Uniqlo also successively opened overseas stores as indicated in the following Table 1.

Table 1 Uniqlo’s foreign store development since 2005
Full size table

Second, Fast Retailing also expanded significantly in Japan, first opening large-scale stores in Shinsaibashi (Osaka) in 2004 (becoming a global flagship store 2010), Ginza in 2005, Kobe Harborland in 2007, and in Ikebukuro’s Tobu department store in 2011. It also opened a series of global flagship stores in Japan (beyond the Shinsaibashi store in Osaka as noted above): the Ginza store in 2012; the Lee Theater store (Kichijoji, Tokyo) in 2013; and “Uniqlo Osaka” in 2014. In addition, global hotspot stores opened, such as: the BICQLO Shinjuku Station East Exit store in 2012; the Ikebukuro Sunshine 60 Dori, Okachimachi Store and Kichijoji Store in 2014.

Third, Uniqlo diversified its businesses, opening a women’s innerwear specialty store in Ginza in 2005 (closed in 2009) and a children’s and baby specialty store, Uniqlo Kids (closed in 2009). In 2007, Uniqlo opened a T-shirt specialty store, UTSTORE HARAJUKU, in Harajuku, Tokyo. In 2017, Uniqlo refreshed and relaunched its Japanese online store.

In 2006, Fast Retailing established the g.u. brand (now spelled G.U. or GU) that operates the eponymous store specializing in low-priced casual wear. It opened the first g.u. flagship store in Shinsaibashi in 2010 (and a Ginza store in 2012). It also expanded overseas, in Shanghai in 2013, Taiwan in 2014, Hong Kong in 2017, and South Korea in 2018.

Also in 2006, Fast Retailing formed a business alliance with Toray Industries with the aim of creating a “strategic partnership.” In 2007 the alliance began working on the HEATTECH campaign that became a great success.

Thus, Fast Retailing’s business continues to grow. Clearly, the largest factor in the success has been Yanai’s skillful risk-taking and growth-oriented investments.

Masayoshi Son Before 2006

Among the works of business historians analyzing Masayoshi Son’s entrepreneurial activities, Hiroaki Yamazaki’s article published in 2007 is especially insightful.Footnote 10 The following discussion of Son’s activity through 2006 is based on that article.

Masayoshi Son was born in 1957 (Showa 32) in Tosu City, Saga Prefecture, the second son of an ethnic Korean family in Japan. He entered Kurume University Senior High School, one of the leading high schools in the area, but dropped out after being fascinated by the atmosphere of the U.S. west coast which he visited for a summer language study program during his first year in high school. After moving to the U.S., Son passed the required high school graduation exam and completed 2 years of college before transferring to the Department of Economics at the University of California, Berkeley in 1977.

While at Berkeley, Son engaged in several profitable businesses, which included development of a voice-activated electronic translator and installations of Space Invaders game machines around campus. In 1981, a year after graduating from Berkeley and returning to Japan, he founded Japan Softbank, a PC software wholesaler in Onojo City, Fukuoka Prefecture, with capital of 10 million yen. Hiroaki Yamazaki discusses Masayoshi Son’s business activities from that time through 2006, dividing them into the following three phases:Footnote 11

  1. 1.

    The foundational period from the establishment of Japan Softbank through FY1993.

  2. 2.

    The period of active mergers and acquisitions between FY1994 and1999.

  3. 3.

    A period of transition “from an Internet conglomerate to comprehensive telecom operator” between FY2000 and 2006.

In the foundational phase, shortly after establishment, Japan Softbank moved to Tokyo and signed exclusive contracts with Joshin Denki, the operator of Japan’s largest PC store, and with Hudson, the largest software developer in Japan. By signing exclusive deals with the top companies, both at the entry and exit points of computer software distribution, Japan SoftBank was able to secure an overwhelmingly dominant position in this field.Footnote 12

Masayoshi Son ran into financial difficulties stemming from these deals but he overcame the crisis with a loan from the Kojimachi branch of the Dai-Ichi Kangyo Bank. The loan was made possible by the mediation of Tadashi Sasaki, a senior managing director at Sharp, whom Son met through the development of a voice-activated electronic translator.

In 1982 (Showa 57), Japan Softbank started a publishing business, with the launch of a special interest magazine that showcased PCs and software by each manufacturer. “Thus, the business of Japan Softbank began to develop based on two pillars: the wholesale of PC software and the publication of the model-specific PC magazine.”Footnote 13

In 1989 (Heisei 1), Masayoshi Son met David A. Norman, then chairman of Businessland, a rapidly growing U.S. company in the field of network equipment, and established Businessland Japan Co. The following year, through an introduction by Norman, Son met with Raymond Noorda, president of Novell. Novell had developed an OSFootnote 14 called Netware for local area networksFootnote 15 and held a 65% market share in the United States. With the cooperation of Fujitsu, Toshiba, Canon, Sony, and NEC, Son established the Japanese branch of Novell. “Thus, in the new field of network business, Son enlisted the cooperation of leading Japanese PC makers to encourage America’s most prominent network operator to enter the Japanese market. As a result, Japan SoftBank succeeded in swiftly securing a dominant position in this field.”Footnote 16 Based on this success, as the company aimed for global expansion, Japan Softbank changed its name to Softbank Corp in 1990.

Phase 2 commenced in 1994 as SoftBank made its stock available on the over-the-counter market. Having raised a large amount of capital, Masayoshi Son pursued an active M&A strategy, acquiring Interop in 1994, the exhibition division of Ziff-Davis Publishing, at that time the top U.S. computer magazine publisher. In 1995, Son acquired Comdex and Ziff-Davis Publishing, the top two companies in the exhibition industry. A year later, he acquired Kingston Technology, a leading manufacturer of computer memory boards.

Thus, large, flashy M&A deals were completed, but all of them were then sold off in a short period of time, so one has to say these deals as a whole ended in a failure, but during this process, Son acquired a ‘golden egg’, which was Yahoo.Footnote 17

Yahoo Inc. was an Internet information search company established in the U.S. in 1995. Son immediately decided to invest in Yahoo after hearing about the company from Eric Hippeau of Ziff-Davis Publishing. When Yahoo entered the Japanese market in 1996, Son took control of a 60% stake in the newly established Yahoo Japan.

SoftBank, which went public on the First Section of the Tokyo Stock Exchange (TSE) in 1998, established NASDAQ Japan Planning in the same year as a 50–50 joint venture with the National Association of Securities Dealers (NASD) of the United States. “This was an attempt to support venture businesses in line with the trend of fostering IT ventures, which had been going on in parallel with the surge of IT-related stock Footnote 18 since FY1998. The company formed a business alliance with the Osaka Securities Exchange (OSE) and opened the Nasdaq Japan market in June 2000.”Footnote 19 However, due in part to competition with Mothers, a market established in 1999 by the Tokyo Stock Exchange for startups, Nasdaq Japan Inc. was dissolved in 2002. The trading platform itself survived after it was reorganized as the Osaka Securities Exchange Hercules market for startups.

Phase 3 began as Softbank’s stock price, which had soared during 1999, began to plummet at the beginning of 2000. This sharp decline forced Masayoshi Son to restructure and clarify his management policies. SoftBank’s annual securities report for FY2000 included a new section entitled “Management Policy and Overview of the SoftBank Group.” It emphasized that “The Group will invest all of its managerial resources in the Internet field, particularly broadband-related businesses;Footnote 20 as a leader in the Internet business, the Group will strive to develop its venture business infrastructure and carefully make investments through venture capital; and to do this efficiently, the Group will introduce a ‘group structure consisting of three layers—a pure holding company, business management companies by segment, and group businesses.’”Footnote 21

In line with this policy, Son aggressively pursued broadband-related business initiatives and pushed forward on the path to becoming a comprehensive telecom operator. In 2000, SoftBank became the largest shareholder of Nippon Credit Bank (later, Aozora Bank)—temporarily nationalized to dispose of bad loans—by providing 48.9% of the bank’s 79.5 billion yen capital. In 2003, SoftBank sold this stake to Cerberus, a U.S. investment fund, for 101.1 billion yen. “SoftBank earned a net gain of 50 billion yen from the sale and invested most of the proceeds into its broadband business.”Footnote 22 These included the launch of the comprehensive broadband service “Yahoo BB” in 2001 and of the new comprehensive fiber-optic broadband service “Yahoo! BB Hikari” in 2004.

SoftBank entered the fixed-line business with the acquisition in 2004 of Nippon Telecom and made a full-scale entry into the mobile telecommunications business with the 2006 acquisition of Vodafone’s Japanese subsidiary. “With this acquisition, SoftBank was swiftly obtained the status of the third largest mobile carrier [in Japan] behind NTT (NTT East and NTT West) and NTT DoCoMo.” Footnote 23

By pressing ahead on its path as a comprehensive telecommunications operator, SoftBank’s corporate size grew rapidly.Footnote 24 SoftBank’s total assets (on a consolidated basis), around 1 trillion yen at the end of FY2002, reached 4.191 trillion yen by the end of 2006.Footnote 25

Hiroaki Yamazaki provides the following summary of Son’s meteoric rise:

The most impressive aspects of Masayoshi Son’s entrepreneurial activities are the speed of his decision-making and his uniquely strong negotiating skills to deal with the big names in the business community. This was especially evident in the series of large-scale M&As carried out after FY1994.Footnote 26

… .Most of these deals did not come to fruition, and he was forced to withdraw or liquidate assets after a relatively short period of time. For this reason, his actions were often characterized as seeking short-term capital gain, and because of that he was often labeled as an unscrupulous businessman.

However, a dispassionate examination of his actions since the founding of Japan Softbank shows that Son has been consistent in his approach to pursuing IT infrastructure as his business domain, finding business opportunities in it, and boldly taking on challenges. Although many large M&As ended in failure, his discovery of the ‘golden egg’ Yahoo, and the success of the ADSLFootnote 27 (broadband infrastructure) business, should be attributed to his speedy decision-making and boldness of action. Furthermore, his actions helped to spur the IT revolution in Japan by exerting strong competitive pressure on the established economic order, as seen in the emergence of new securities markets (TSE Mothers and OSE Hercules), the promotion of broadband penetration, and the breaking up of the two-company oligopoly in the mobile telecommunication business. Masayoshi Son should be recognized as a fierce innovator who altered the economic order, acting boldly without fear of risk.Footnote 28

Thus, Yamazaki dismisses the view among some observers of Masayoshi Son as an “unscrupulous businessman” and highly praises him as a fierce innovator who altered the economic order, acting on business opportunities without fearing risk. Yamazaki highlights Son’s characteristics, such as his unwavering consistency in the business domain as well as his strength in the “speed of decision-making and boldness of action.”

Masayoshi Son After 2007

Son’s entrepreneurial activities, characterized by his bold approach, continued unabated after 2007, as can be seen on the SoftBank Group website.Footnote 29

First, he pursued acquisitions and investments on a global scale. Highlights included turning Sprint Nextel Corporation of the United States into a subsidiary between 2012 and 2013 and acquiring ARM Holdings plc of the United Kingdom in 2016. In addition, SoftBank carried out acquisitions and investments between 2013 and 2019 in countries including Finland, the United States, Indonesia, India, Singapore, China, South Korea, Canada, and Sweden.

Second, Son also actively pursued the growth of domestic business operations. In the telecommunications business he launched the “White Plan” in 2007, a new pricing plan for mobile communication services that engaged in fierce competition with NTT DoCoMo and KDDI. In 2013, SoftBank turned the PHS (personal handy-phone system) service company WILLCOM into a subsidiary, and a year later, introduced the world’s first emotion-recognizing personal robot, Pepper. In 2018 the company co-founded MONET Technologies Inc. with Toyota Motor to engage in next-generation mobility services.

Third, he focused on the promotion of renewable energy. In 2011, he established SB Energy to popularize and expand the use of renewable energy, and in 2013 he established Bloom Energy Japan to supply electricity through distributed power sources that were both clean and stable. Two years later, SoftBank won a bid for a mega-solar power project in India with an output of 350,000 kW. In 2016, the company signed a memorandum of understanding with the State Grid Corporation of China (SGCC), Korea Electric Power Corporation (KEPCO), and [Russia’s] Rosseti on research and planning to promote the construction of an international interconnected power grid enabling the use of renewable energy over a wide area.

Meanwhile, in July 2015 the original Softbank changed its name to Softbank Group, and Softbank Mobile changed its name to simply Softbank. SoftBank (formerly SoftBank Mobile) thus became a subsidiary of SoftBank Group, going public on the First Section of the Tokyo Stock Exchange in 2018. Thus, Son continued to “boldly act on business opportunities without fearing risk” even after 2007. Like Tadashi Yanai, Masayoshi Son was, and continues to be, an exceptional manager in Japan’s post-1990s business world where the “investment restraint mechanism” has become pervasive.