History of Company and Industry in the Region
The Iwate region in northern Japan has produced ironware for 900 years. Nambu cast ironware originated in the towns of Morioka, a castle town with an appreciation for tea, and Mizusawa, which produced farming tools and equipment for Buddhist ceremonies like temple bells (Genjuro 2017). The precursor to the current style of cast iron kettles and cookware was developed during the Edo period (1603-1868) and is called nambu tekki, which literally translates as “southern iron,” referring to the Edo-era name for the area, Nambu. (Singleton Hachisu 2016). One theory suggests that the slow, methodical way of producing cast iron originated in part because of the bitterly cold, snowy winters in the northern Tohoju region.
At the time, people spent many hours indoors and developed slow, steady work patterns to keep themselves occupied and warm during the long, cold months (Lidell 2014). In 1659, Nambu Shigenao, the head of the Nambu Domain, invited an artisan from Kyoto named Koizumi Nizaemon to move to Nambu in order to foster iron casting in the region. That was the start of the creation of the iron pots, known as nambu-kama. The iron kettles, nambu tekki, began around a century later in about 1750, when a descendent of Koizumi developed an iron kettle with a pouring spout and handle (Kazuyoshi 2013).
Figure 2.1: The towns of Morioka and Mizusawa, where Nambu cast ironware originated in the Iwate region of Japan.
Over the centuries that followed, the reputation of nambu products increased in Japan and later spread to other countries. However, during World War II, the government banned all
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iron production with the exception of military supplies. This meant that of the 150 cast-iron craftsman in the area, only 16 continued to be employed in this sector. Cast cast-iron production resumed after the war, however faced another slump in the 1960s. Many people switched to the use of propane gas, which, combined with the rise of aluminum products caused fewer people to use cast iron kettles in their homes. Recent trends suggest that an interest in cast iron kettles, pots, and cookware has been revived, not only for traditional tea ceremonies but also for practical use in the kitchen (Kazuyoshi 2013).
The Genjuro company was founded in Iwate in 1852. At age 12, the founder became a pupil of the master metal caster in the area. He first earned money by raising silkworms and army horses, then used the funds to start Genjuro. In its earliest incarnation, the company produced cast iron pots, pans and other household items, with iron sourced from the nearby mountains.
Products were sold in the Tohoku area, and the company also played a role of wholesaler with goods from other nearby manufacturers. The company began exporting ironware to Europe in 1962, and later to Australia, Taiwan and the United States. In the 1970s, Genjuro started to work with designers such as Makoto Hirose to create a unique style and differentiate the product line from other cast iron brands. The company, and industries throughout the region, faced a setback as a result of the Great East Japan Earthquake in 2011. Production was halted for months due to damage to the foundry, and was eventually restarted with financial support from foreign donors, particularly from Taiwan and the United states (Genjuro 2017).
Today, Genjuro’s president is the fifth generation
descendant of its founder, with active involvement in firm operations by the president’s daughter, who plans to one day assume control of the company.
Company Overview
Genjuro produces and sells a line of more than 50 pots, pans, and other items of kitchenware, as well as about a dozen kettles and pots. They also produce and sell a small line of
Figure 2.2: Company catalog from 1930.
Source: Courtesy of Genjuro
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homeware accessories such as bells, ornaments, vases and other home décor items. In Japan, products are sold online through the company website, at the company outlet store in Iwate, in department stores throughout Japan as well as in smaller lifestyle stores. In Taiwan, products are sold through a single distributor who provides merchandise to multiple retailers in Taipei and throughout the country.
Tea Pots and Kettles Kitchenware
Figure 2.3: Cast iron tea pots and kettles and kitchenware from Genjuro. Images courtesy of Genjuro.
Company Sales and Revenue Data
Sales and revenue data available for the company is limited to the information below. The following are the figures made available by Genjuro for the 1-year period April 2016-March 2017. Gross Sales Amount ¥655,000,000
2.7%5.9%
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As can be seen by the data above, Genjuro derives more than 90% of its sales by revenue from within Japan. Taiwan and Europe constitute the next tier of sales, with 2.7% and 5.9%
of sales, respectively. The company has just dipped a toe into markets in Australia and the United States, with less than 1% of sales coming from each of those countries. Merchandise sales in Europe are constituted mostly of tea pots, whereas sales in Taiwan are mainly cookware. See below for additional detail on product categories by country.
Genjuro Sales (Quantity by item category) April 2016-March 2017
Location Cookware Kettle Tea Pot Homeware
Taiwan 5,082 289 161 160 Sales Quantity Totals 84,217 29,503 33,937 69,725
Figure 2.6: Quantity of sales for Genjuro. Courtesy of Genjuro
Although historical data is not available from the company, it is possible to extrapolate sales data by region based on historical year-on-year growth in the regions targeted by Genjuro.
The chart below uses statistics from Euromonitor International to present homewares data on the target regions. Growth in Japan, from which the majority of sales are derived, was nearly flat, at only .2% average growth from 2011 to 2016. Europe actually saw an average decline in the size of its homewares market of -4.4%. Taiwan and the US showed the strongest, although still fairly slow, growth at 1.7% and 1.8% respectively. Australia was also nearly flat at less than 1% growth over five years.
Homewares Market Size Year-On-Year Growth Percentage (by region)
Region 2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 – 2016 Average
Figure 2.7: Homewares Market Size Year-On-Year Growth Percentage (by region).
Source: Euromonitor International 2017. Euromonitor from trade sources/national statistics
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Using the data above on market size by region, it is possible to extrapolate Genjuro sales from 2011 to 2017 assuming that the percentage of sales by region has stayed consistent.
Based largely on stagnant growth in its largest market, Japan, along with losses in market size in Europe, Genjuro would actually have seen a slight decline in sales from 2011 to 2016, as is expressed in the chart below. Based on market size by region, sales would have declined by .6% from ¥659,004,403 in 2011 to ¥655,000,000 in 2017.
Figure 2.8: Genjuro Sales by Region 2011-2016 (extrapolated)
Looking ahead, analyst projections on market size for homewares can be used to predict future trends for Genjuro sales. As seen in the chart below, the highest growth is anticipated in the US, with an average forecasted growth of 1.1% over the next five years. Japan is looking towards the slowest growth, tied with Europe at .5%. Whereas growth in Europe is predicted to remain steady, growth in Japan will slow from .9% in 2016-2017 to .2% over 2020-2021. Taiwan is predicted to have slow but increasing growth, from .6% in 2016-2017 to .8% over 2020-2021, with an average growth over the period of .7%. Projections are based on fixed 2016 exchange rates (US dollars), at constant 2016 prices.
540,000,000 560,000,000 580,000,000 600,000,000 620,000,000 640,000,000 660,000,000 680,000,000
2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016 2016-2017 (actual)
Genjuro Sales by Region 2011-2016 (extrapolated)
Japan Australia USA Western Europe Taiwan
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Homewares Market Size Year-On-Year Growth Projections (by region)
Figure 2.9: Homewares Market Size Year-On-Year Growth Projections (by region).
Source: Euromonitor International 2017. Euromonitor from trade sources/national statistics
Using the year-on-year growth projections above, it’s possible to predict future sales for Genjuro for 2017-2021. As can be seen in the chart below, if the company maintains its current balance of sales in the five regions in which it operates, it can expect to see sales increase by 2.5% from ¥655,000,000 in 2016 to ¥671,237,996 in 2021, or ¥16,237,996. The bulk of the growth will be due to modest increases in Japan, its largest market, supported by additional increases in Taiwan and Europe.
Figure 2.10: Genjuro Sales by Region 2016-2021 (projected)
Available income data on the company is limited to the information provided in the Consolidated Income Statement below. Based on the data provided, the profit margin ratio
540,000,000
2016 (Actual) 2017 2018 2019 2020 2021
Genjuro Sales by Region 2016-2021 (projected)
Taiwan
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(net income/sales) for the company is ¥35,900,000 / ¥655,000,000 = 5.5%. This ratio measures what percentage of sales is made up of net income.
Genjuro Company Consolidated Income Statement For the period April 2016-March 2017
Revenues
Merchandise sales ¥655,000,000
Total revenue ¥655,000,000
Expenses
Manufacturing cost ¥360,700,000
General and administrative ¥170,100,000
Other expenses ¥88,300,000
Total expenses ¥619,100,000
Net Income ¥35,900,000
Figure 2.11: Consolidated Income Statement for Genjuro. Data courtesy of Genjuro
Genjuro’s very thin margin of 5.5% compares unfavorably with profit margins of 10.5% for personal goods in Japan as a whole (Euromonitor 2017). Profit margin data for Genjuro competitors is limited as the industry is dominated by privately held firms which do not release this information. However, Le Creuset had a reported profit margin ratio of 31.6% in 2015, the most recent year for which data are available (Thomson Reuters 2017). Staub had a reported profit margin of -11.5%, however the most recent available data is from 2009.
Genjuro’s thin margins are a weakness and may potentially limit its tolerance for risk or capacity for investment in needed marketing initiatives, as discussed below.
Analysis of Genjuro Core Competencies
What sets Genjuro apart from its competitors, and gives it an advantage in the market place?
In other words, what are the core competencies of Genjuro? Core competencies are defined
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as the resources and capabilities that are not possessed by competitors currently and not easily imitated in the near future. They serve as the source of what the firm does well or better than its competitors, allowing it to generate competitive advantage (Rothaermel 2014).
The following analyses are based on multiple interviews with executive leadership and employees, a multi-day site visit to the foundry in Iwate in April 2017, internal company documents, and additional ongoing market research consulting work with the company.
To evaluate core competencies and their connection to competitive advantage, consider the following framework:
Figure 2.12: Linking Resources, Capabilities, Core Competencies, and Activities to Competitive Advantage and Superior Firm Performance. Source: Rothaermel, Frank. (2014, January). Strategic Management. New York, New York: McGraw-Hill Education.
Resources may fall broadly into the categories of tangible and intangible resources. Tangible resources for Genjuro include the land in Iwate, the foundry, other associated buildings, equipment, supplies and labor. Intangible resources are the more than 160 years and five generations of expertise in making cast iron goods. The institutional memory and knowledge of the cast iron making process have significant, though hard to quantify value. In addition, the reputation of the region for making this type of cookware is very high. Particularly in Taiwan, goods labeled as “Made in Japan” are also perceived as being of higher quality.
Under the heading of capabilities, the firm’s greatest capability is technical, as the goods are extremely high quality at an accessible price point. Another important capability is in the artistry of the cookware and tea pots and kettles, which has been a point of differentiation for the firm since the 1970s. In preliminary market research, discussed in more detail in
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following chapters, the artistry and high quality are consistently cited by consumers as strong assets of the products.
In terms of international expansion into Taiwan, capabilities have several growth areas. The company struggles to manage its relationship with its Taiwanese distributor. The distributor either does not know, or will not share, information with management about the retail outlets where the products are ultimately sold. Pricing in Taiwan is inconsistent, with prices as much as double in some retail outlets as compared to others. The company does not have a fluent speaker of Mandarin on staff, and its only fluent English speaker is a consultant who is physically located in Europe, although who works closely with the company president.
As can be seen in the chart above, the resources and capabilities reinforce the core
competencies. In this case, the core competencies are the exquisite design and high technical competency from generations of experience, available to consumers at an accessible price point. The core competencies are then leveraged in the firm activities.
Activities for the firm start with the import of iron ore, predominantly from Australia, and modifying the composition of the raw materials. Cast iron cookware is produced on site in the foundry in Iwate. Products are sent to the distributor in Taiwan. Genjuro sets the price for its products, but the distributor currently controls all downstream channels. At this time, there is basically no marketing being done in Taiwan, either by the company or its distributor.
In spite of some challenges, particularly as they relate to management and marketing, the company has several competitive advantages. The main competitive advantages are:
1. Exquisite design: The artistry and physical beauty of the products are a major asset and point of differentiation.
2. Made in Japan: Consumers in Taiwan regard items made in Japan as being of high quality with a close attention to detail.
3. Tightly controlled production: Generations of experience and close control of the onsite production process provide for a superior product.
4. Conducts heat well: The cast iron conducts and retains heat more effectively as compared with other materials.
5. Perceived health benefits: Cast iron is believed to have a “ferrous iron effect” in which the iron seeps into food adding health benefits. Some preliminary nutrition research supports this theory (Geerligs 2003), however the perception of the health benefit is the true competitive advantage. Also, the non-stick coating used on some
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competing cookware products is perceived as having potentially negative health implications.
By leveraging these competitive advantages, and overcoming some of the challenges particularly around management capabilities and marketing, Genjuro has the potential to achieve superior firm performance. Resources and capabilities must be continuously reinvested, honed, and upgraded in order to sustain superior performance.
VRIO Analysis
When considering future performance, it is critical to evaluate the degree to which the resources and capabilities described above can sustain competitive advantage. Under the VRIO framework, for a resource to be the basis of a competitive advantage, it must be valuable (V), rare (R), costly to imitate (I), and the firm must organize (O) to capture the value of the resource (Barney 2009). According to this model, a firm can sustain a competitive advantage only when it has resources that satisfy all of the VRIO criteria.
Resources in the VRIO framework are broadly defined to include any assets as well as any capabilities and competencies that a firm can draw upon when implementing strategy.
Figure 2.13: VRIO framework for evaluating competitive advantage. Source: Rothaermel, Frank. (2014, January). Strategic Management. New York, New York: McGraw-Hill Education.
When considering aspects of competitive advantage, a resource is valuable if it helps a firm increase the perceived value of its product or service in the eyes of consumers, either by adding features or by lowering price. It’s rare if only a few firms possess it. A resource is costly to imitate if firms that do not possess the resource are unable to develop or buy the resource at a reasonable price. If the resource in question is valuable, rare, and costly to imitate, then it is an internal strength and a core competency. If the firm’s competitors fail to duplicate the strategy based on the valuable, rare, and costly-to-imitate resource, then the firm
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can achieve a temporary competitive advantage. However, to achieve lasting competitive advantage the firm must be able to fully exploit its competitive potential, meaning it must be organized to capture value—that is, it must have in place an effective structure and systems so that it can realize its full potential. The chart below examines Genjuro’s competitive advantage for cookware in Taiwan within the VRIO framework.
Valuable Rare Costly to
Figure 2.14: VRIO analysis of competitive advantage for Genjuro in TaiwanAs can be seen in the chart above, there is no aspect of competitive advantage which
currently succeeds on all measures of the VRIO framework. The beautiful design of the items
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and the tightly controlled production come closest, achieving three out of four measures, and moderate status on the fourth measure. For design, the company’s products are remarkably beautiful, however it is possible that in the future another firm could hire skilled ironware designers, making it conceivable to imitate. For the measure of tightly controlled production, it is valuable, costly to imitate, and currently organized to capture value. However, other Japanese firms around Iwate also keep close control on their onsite production, meaning that while it is rare outside of Japan, within Japan there are other similar companies (competitive landscape discussed below in greater detail). The advantage that the products conduct heat well and their perceived health benefits are shared by other cast iron cookware
manufacturers, meaning that while they are valuable they are not unique to Genjuro.
In order to sustain lasting competitive advantage, the company must seek to improve those aspects of the VRIO framework that are currently inhibiting its ability to take full advantage of its core competencies. The full discussion of marketing and management challenges and the possibilities of sustaining lasting competitive advantage are discussed below in Chapter 3.
Strengths-Weaknesses-Opportunities Threats (SWOT)
The SWOT analysis allows for the synthesis of the company’s internal strengths and weaknesses with an external analysis of opportunities and threats. A SWOT analysis evaluates a firm’s current situation and future prospects by simultaneously considering internal and external factors. The focus is on internal and external factors that can affect—in a positive or negative way—the firm’s ability to gain and sustain a competitive advantage.
Strengths:
• Genjuro has their own factory, which can ensure they can produce high quality products and achieve monthly and annual production targets.
• Good technical and design abilities.
• Overseas distribution currently in place in several regions in addition to Taiwan (Europe, Australia, United States).
• Management is open-minded towards new cultures and willing to consider external voices.
• Genjuro brand itself has history, story and identity that could be used for marketing expansion overseas.
• Items are very beautiful and frequently cited by customers for their exquisite artistry.
Weaknesses:
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• Management does not currently have sufficient knowledge and business experience in the Taiwan market.
• Current relationship with the Taiwan distributor is characterized by information asymmetry and poor communication.
• Once Taiwan market sales boosts, the production capacity of the factory might not afford enough output.
• The company does not have employees who can speak Mandarin fluently.
• Information on products needs to be translated into Chinese.
• Some potential customers perceive cast iron cookware as heavy and hard to maintain.
• Extremely slim profit margins. Currently only 5.5%. Very little room for error.
Opportunities:
• High levels of human capital in Taiwan. Possible to find highly skilled employees for future positions, for example for a retail store.
• Taiwan market has space for new product lines of cast iron cookware.
• Japanese brands possesses a positive image in Taiwan.
• Japanese brands possesses a positive image in Taiwan.