What’s going concern in Japan?

Going concern is an idea that a company will continue to operate and will not go out of business, and it is a premise of corporate management. Especially for managers of listed companies, going concern is a concept conscious of the accounting audit. And since going concern is a premise of corporate management they are able to collect capital widely from investors.

When expressing going concern in English, it may represent the same meaning as a company keeps making profit in the future. However this meaning is different when we Japanese say going concern in Japan. In Japan, there is an idea that companies should continue to operate as a matter of course. The idea seems to be influenced by historical background that has been regarded as “good management was to retain and accumulate of profit even if there was profit to pay dividends”.

My opinion about going concern

When I talked with some managers of SMMs (small and medium manufactures) in Kyoto, I got an impression that they had a strong concept to continue to operate their business in the future. One of them said “I have my company only for 60 years in Kyoto, if I could have over 100 years, I would have become a professional as a manager”. I was surprised because the survival rate of companies is 50% in 10 years, now in Japan.

In fact, Japan is the number one country that has long established companies that continue over 100 years in the world. If broken down into the prefecture, Kyoto is the number one in Japan.

How are managers of companies in Kyoto doing going concern?

Going concern – company will continue to operate – may seem like continuing the same business style of providing the same products to the same customers. But it’s wrong view of going concern.

In a lot of cases, managers of companies in Kyoto change their business for producing products to adapt the present needs using traditional industrial technology. They do it for doing going concern.

For example:
– Traditional firing technology in Kiyomizu-yaki is applied to present ceramic condenser technology
– Traditional dyeing technology in Yuzen is applied to present semiconductor printing technology
– Traditional metal decoration technology in Buddhist manufacture is applied to present metal deposition technology
– Traditional brewing technology in Sake is applied to present biotechnology

If managers continued the same business style, the companies couldn’t exist now. In fact, the market size of the industry using these traditional technology has shrunk significantly.

Looking at the change in business in Kyoto, I believe that going concern simply does not mean continuing business. It means that changing business for continuation.

When managers decide to make a new challenge, they also take risk about their business. It may be a decision involving fear for managers, however why can they decide it beyond fear? One of the answers I felt from the managers in Kyoto was basic trust to themselves. – Even if I lost everything , it remains to me that I was born in Kyoto. – It is one of the roles of the local community that people living in the area can trust and have pride. The managers of companies understand that they can run companies with the help of the local community, so they would like to contribute to the area.

I felt that the pride and contribution of the local community enhance the spirit of making challenge. It supports the intention of going concern that means changing business for continuation.