Japan's Oldest Businesses Have Survived for More Than 1,000 Years

So why are some of them folding now?

Century-old American companies like General Electric and Ford appear ancient when viewed alongside modern upstarts like Google and Facebook. But there are a number of Japanese firms—some of which have been around for more than a millennium—that exist on another scale of time entirely. Japan is home to some of the oldest continuously operating businesses in the world, among them a 1,300-year-old inn and a 900-year-old sake brewer.

While this longevity is not confined to East Asia—the Italian gun manufacturer Beretta has operated since at least 1526 and the cymbal maker Zildjian was founded in 1623 in Turkey—these Sequoia-like firms are relatively common in Japan. The country is currently home to more than 50,000 businesses that are over 100 years old. Of those, 3,886 have been around for more than 200 years. As a point of comparison, only one in every four U.S. companies founded in 1994 was still operating in 2004, according to the Bureau of Labor Statistics.

But in the past decade, some of Japan’s oldest businesses have finally shut their doors. Last month, the roughly 465-year-old seafood seller Minoya Kichibee filed for bankruptcy, which came after the news last year that the 533-year-old confectioner Surugaya met a similar fate. In 2007—after 1,429 years in business—the temple-construction company Kongo Gumi ran out of money and was absorbed by a larger company. Three companies going bust doesn’t quite make a trend, but it seems like there has to be something larger going on if a company that's been around for more than a millennium suddenly blinks out of existence.

The first question to ask about a company like Kongo Gumi is why it stuck around so long in the first place. For one thing, these companies tend to be clustered in industries that never really go out of style. Kongo Gumi specialized in building Buddhist temples—a pretty dependable bet in nation with a strong Buddhist history. The company's first temple, near Osaka, was completed in 593, and has been rebuilt six times since then (by Kongo Gumi, of course). “There’s a pattern,” William O’Hara, the author of Centuries of Success, told The Wall Street Journal in 1999. “The oldest family businesses often are involved in basic human activities: drink, shipping, construction, food, guns.”

The other reason these companies proliferate in Japan is because of how the country's family-run businesses have been passed down through generations. Japanese business owners typically bequeathed entire companies to their eldest sons, and there's a 10-foot-long 17th-century scroll tracing all of Kongo Gumi's previous owners. But what fostered corporate longevity was that owners were permitted some leeway if they didn’t trust their offspring to take the helm: They could adopt a son, who would often marry into the family and go on to run the business.

“The continuity component is surely helped by the custom of adopting (adult) sons to carry on the business, displacing ‘natural’ sons when direct progeny are not viewed as suitable,” Mike Smitka, a professor of economics at Washington and Lee University, wrote in an email. Japan’s oldest companies are thought of as family-run, but that’s something of a misnomer. “The continuity is in part fictive,” Smitka says.

In Japan, a 2011 study found, businesses run by adopted heirs consistently outperformed those run by blood heirs. This explains a bizarre statistic about Japanese family life: Unlike in the U.S., where most adoptees are children, 98 percent of Japan’s adoptees are 25-to-30-year-old men. “You can’t choose your sons, but you can choose your sons-in-law,” goes one Japanese saying.

So if they made it 500 or even 1,500 years, why would any of these companies collapse now? The most compelling explanation has to do with how the Japanese government has changed the way it treats struggling companies, according to Ulrike Schaede, a professor of Japanese business at U.C. San Diego. Historically, Schaede says, Japanese banks helped out even the most hopeless businesses without a second thought. “Between 1955 and 1990, only something like 72 Japanese companies went bankrupt. The reason was that the banks were supposed to bail them out,” Schaede says.

Then, in 2000, Japan passed its first Chapter-11-like bankruptcy law, and four years later, rewrote 1922 laws concerning corporate liquidation. This changed the default fate of troubled businesses. “Non-performing companies no longer receive help from lenders unless they have a solid plan for change,” Schaede says.

These archaic companies—Minoya Kichibee sold salted squid guts using a 350-year-old recipe—used to benefit from the dependability of banks, even if their products weren’t optimized for the modern world. “If capitalism is about free entry and free exit, Japan now has free exit,” Schaede says. She speculates that these old-world companies were able to stay in business even 15 years after the new legislation was passed because the same banking culture still lingered. “If you go from an old system to a new system, it won’t change overnight,” she explains.

Even if bankruptcy legislation is the most logical theory of why these companies finally folded, it’s not the only plausible one. It’s also worth noting that Japan’s cultural norms have eroded quite a bit in recent decades, which turns out to be a problem for a company selling traditionally-prepared squid guts. “Japanese Millennials are not that interested in really traditional Japanese culture as compared to their grandparents or parents,” says William Rapp, a professor of business at the New Jersey Institute of Technology. “As the old population dies off, there is just not enough demand that is able to sustain such firms.”

Japan has also started to take a different stance toward marriage, adoption, and inheritance. “It's also likely become harder to recruit young men to enter a small firm under the presumption that they will marry the president's daughter,” says Mike Smitka.

Journalists and academics have covered Japan's ancient family businesses in the past, trying to extract actionable business wisdom from their successes. "The story of Kongo Gumi says you should mingle elements of conservatism and flexibility," wrote Businessweek in 2007. In truth, a millennium-long winning streak probably has more to do with circumstance than business planning. That said, the first piece of advice to come out of the last president of Kongo Gumi’s mouth when he was interviewed about the success of his company is an undeniable key to longevity: “Don’t drink too much.”