Lawson's CEO Leads Exodus of `Best People' to China as Japan's Growth Ebbs

Lawson Inc. Chief Executive Officer Takeshi Niinami aims to open almost 10,000 stores in China by 2020, selling drinks, food and magazines. To pull it off, the Tokyo-based executive is packing his bags for Shanghai.

As Japan’s second-largest convenience-store operator plans to boost outlets in China more than 30-fold, Niinami, 51, will spend a month in the nation from May and another within less than a year, he said at a media briefing in Tokyo on Dec. 20. Lawson is also training Chinese recruits in Japan to work as store managers in their home country, where the company lags behind rivals Seven & I Holdings Co. and FamilyMart Co.

“To get a feel for daily life in China and to take risks, I’ve got to live there a couple of months,” Niinami said. “Staying all the time in Japan, I tend to focus only on downside risks.”

Niinami’s plans underscore how Japanese companies are counting on China, set to surpass Japan as the world’s second- largest economy this year, as a shrinking and aging population dims the outlook for growth at home. It is also an example of how executives in the nation are seeking to overcome a shortage of international experience as they expand abroad.

“Lawson’s move shows how Japanese companies are trying to globalize,” said Tsuyoshi Komori, president of Tokyo-based consultant Mercer Japan Ltd. “Spending time and pouring energy into China will prove Niinami’s commitment.”

Lawson rose 0.7 percent to 4,035 yen at the 3 p.m. close of trading in Tokyo. The shares have fallen 1.6 percent this year, compared with a 1.9 percent drop in the benchmark Nikkei 225 Stock Average.

Household Spending

Lawson operated 318 stores in mainland China as of November, according to the company’s website. The nation is Lawson’s sole market outside Japan, where it had 9,935 outlets.

The push in China is driven in part by a decline in Japanese consumer spending, which fell in 2008 and 2009, according to figures released by the Cabinet Office.

Japan’s population is decreasing from a peak of 127.8 million in 2004 and may bottom out at less than 90 million in 2055, according to the National Institute of Population and Social Security Research.

In contrast, the number of middle-income and affluent consumers in China, the world’s most populous nation with more than 1.3 billion people, may almost triple to 415 million in 10 years, Boston Consulting Group Inc. said in November.

7-Eleven, FamilyMart

Competitors have outpaced Lawson in tapping China’s growth. Seven & I Holdings, the world’s largest convenience retailer, operated 708 7-Eleven outlets in mainland China as of November, said Minoru Matsumoto, a company spokesman. FamilyMart had 492 stores in the nation, according to its website.

Lawson opened its first Chinese store in Shanghai in 1996, according to its website. All three companies are based in Tokyo.

“To reach a goal of 10,000 shops by the year 2020, not only the CEO’s leadership example but also logistics and human resources are going to be needed,” said Naozumi Nishimura, an analyst at TIW Inc. in Tokyo with a “neutral” rating on Lawson’s shares. “I’ll be paying attention to how fast they expand and how fast they turn a profit from it.”

Lawson’s growth in China has been held back by a lack of human resources, Niinami said in an interview in April. An initial effort to send Chinese employees to Japan for training proved too time-consuming, he said. Changing its strategy, the company began hiring and training Chinese graduates from Japanese universities.

“The new system started three or four years ago, and now I think we have the resources to accelerate our foreign business,” Niinami said in April.

International Experience

Cross-border training and experience is also a management- level challenge at Japanese companies. Japan ranked 49th among 58 countries this year in international experience for senior managers, according to the World Competitiveness Yearbook 2010 published by Switzerland’s IMD International business school.

The number of Japanese citizens living in China almost tripled in a decade to 127,282 in October 2009, according to Japan’s Ministry of Foreign Affairs. Shanghai is home to 48,255, according to the ministry.

Niinami’s own international experience includes starting the Chinese sugar-trading business at Mitsubishi Corp., a Tokyo- based trading company, he said in an interview with THE 21, a monthly magazine in 2008. He is also a Harvard Business School graduate.

He began his career at Mitsubishi, Lawson’s biggest shareholder, in 1981 and became president of the convenience- store operator in 2002. In 2005, he was named Lawson’s CEO.

China Profit

Under Niinami, Lawson’s operating profit has increased in the past seven consecutive fiscal years. The company forecasts net income in the 12 months ending February may rise to 22 billion yen ($266 million) from 12.6 billion yen last fiscal year, while revenue may fall to 430 billion yen from 467.2 billion yen.

In China, operating profit was at a break-even level last fiscal year, according to the company’s website.

Niinami plans to dispatch a team of staff members, including company directors, to China ahead of his own arrival, he said Dec. 20.

The CEO is also improving his Chinese-speaking skills, said Wenzhou Song, founder of Tokyo-based Softbrain Co. and a strategic adviser to Lawson in China.

“These days, when Mr. Niinami calls me, he speaks Chinese with such good pronunciation I mistake him for Chinese,” Song, a native of China, said in a Dec. 17 interview.

Having worked in China may increasingly be seen as a qualification for top executive jobs at Japanese companies, just as having served in the U.S. used to be a prerequisite for some, Song said.

Niinami, speaking at the Dec. 20 briefing, made the same suggestion.

“I will send the best people from our company” to China, he said. “If they succeed, they may be in line for my post.”

To contact the reporters on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Shunichi Ozasa in Tokyo at sozasa@bloomberg.net

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

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