Case 5. Shiseido Company, Ltd.: Facing Global Competition

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SHISEIDO COMPANY, LTD.: FACING GLOBAL COMPETITION
INTRODUCTION Shiseido was founded by Yushin Fukuhara as Japan’s first Western-style pharmacy in 1872, and has shifted its focus back and forth between cosmetics and pharmaceuticals since 1915. Its strength in both areas has enabled it to weather the Great Earthquake of 1923 and World War II. It leads the cosmetic industry technologically, and has offered Japan many “firsts’’ in products. It introduced Japan to its first toothpaste in 1888. In 1902, Shiseido introduced Japan’s first soda fountain/drugstore. Three years later, it established the chain store system, which became the backbone of the firm and the standard distribution system for the industry. Shiseido began international expansion in 1957 and is currently represented by 17 subsidiaries and more than 8,700 outlets in 69 countries. Offshore production accounts for about 50 percent of its global sales, which amounted to 64.9 billion yen in fiscal 1997. In 1987, Yoshiharu Fukuhara, grandson of the founder, took over as president. The same year, Shiseido announced a 6 percent decrease in sales and a write-off in inventory worth $239 million; net income fell 34 percent to $72 million. The company also abolished separate sales volume budgeting for sales companies and retail outlets, which had been faulted for the tendency of salesmen to push sales to retailers in order to meet in-house quotas. The 1998 product mix consisted of cosmetics (74% of sales), fine toiletries (16%), and other businesses (10%). With the implementation of the “Global No.1’’ long-term vision, Shiseido identified three goals: technological excellence, diversified operations, and customer satisfaction. It continued to streamline domestic cosmetics lines to reduce inventory, eliminating products with a consistent turnover, while developing new technology and items. THE ORGANIZATION Corporate Philosophy Shiseido’s basic management policies for the twentyfirst century are embodied in its “Global No.1’’ longterm vision. While most CEOs might define No.1 as being top in terms of revenues or market share, Fukuhara equates the number-one ranking with quality-dedicated people making sophisticated products and providing high level of customer service. If you do this, he reasons, sales, market share and profits will follow naturally. Shiseido interprets the “benefit desired by customers’’ as the “desire, of customers, for enhanced beauty.’’ Shiseido’s mission as a company is to accelerate and reinforce its efforts to provide such customer benefits. The Shiseido Way is a charter of principles guiding the company activities. This charter incorporates its ideas and determination to work together with its customers, business partners, shareholders, employees, and society. Its determination to work with shareholders is clearly defined in its stated desire to “strive to earn the understanding and responsiveness of all shareholders and other investors, by achieving appropriate and sound business performances, based on high-quality growth, and by pursuing transparent corporate policies.’’

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Research and Development Shiseido has placed central importance on research and development since opening the Shiseido Chemistry Research Laboratories in 1939. Shiseido’s president, Fukuhara, stressed the strong commitment towards R&D, “We are all trying to achieve a greater understanding of body and soul synergy. It all start with research.’’ Shiseido employs around 1,000 people globally in R&D-related positions. In the fiscal year 1998, its R&D investments reached nearly 4 percent of nonconsolidated net sales, illustrating the company’s commitment to creating new value for its product. Shiseido’s research and development are a major strength of the firm, yet only about 5 percent of its products are patented. Shiseido maintains R&D facilities in each major region around the world. These are