Hidekazu Yokoyama has spent three decades building a thriving logistics business on Japan’s snowy northern island of Hokkaido, an area that supplies much of the country’s milk.
Last year he decided to give it all away.
It was a radical solution to a problem that is becoming increasingly common in Japan, the most gray society in the world. With the country’s birth rate plummeting and the population aging, the median age of business owners has risen to about 62 years. Nearly 60 percent of the country’s companies report that they have no plan for what’s to come.
While Mr. Yokoyama, 73, felt too old to continue much longer, stopping was not an option: too many farmers had become dependent on his farm. “There was absolutely no way I could give up the business,” he said. But his kids weren’t interested in running it. Neither were his employees. And few would-be owners wanted to move to the remote, frozen north.
So he posted to a service that helps small business owners in remote areas find someone to take over. The advertised selling price: zero yen.
Mr. Yokoyama’s struggle symbolizes one of the potentially most devastating economic consequences of Japan’s aging society. Many small and medium-sized businesses will inevitably go out of business as the population shrinks, but policymakers fear the country will be hit by a wave of closures as aging owners retire en masse.
In a 2019 apocalyptic presentation, Japan’s Commerce Ministry predicted that some 630,000 profitable businesses could close by 2025, costing the economy $165 billion and as many as 6.5 million jobs.
Economic growth is already weak and the Japanese authorities have acted in the hope of averting catastrophe. Government agencies have launched public relations campaigns to educate aging owners about the options for continuing their businesses after retirement and have set up service centers to help them find buyers. To sweeten the pot, the authorities introduced large subsidies and tax breaks for new owners.
Yet the challenges remain formidable. One of the biggest obstacles to finding a successor is tradition, says Tsuneo Watanabe, president of Nihon M&A Center, a company that specializes in finding buyers for high-value small and medium-sized companies. Founded in 1991, the company has become hugely lucrative, posting $359 million in revenue last year.
But building that business has been a long process. In recent years, small business owners, especially those who ran the country’s dozens or even centuries-old businesses, assumed their children or a trusted employee would take over. They had no interest in selling their life’s work to a stranger, let alone a competitor.
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Mergers and acquisitions “were not well received. Many people felt it was better to close the business than to sell it,” said Mr. Watanabe. The industry’s perception has improved over the years, but there are “still a lot of business people who don’t even know that M&A is an option,” he added.
While the market has found buyers for the companies most ripe for the picking, for many small but economically vital companies it can seem nearly impossible to find someone to take over.
By 2021, government aid centers and the five largest M&A services found buyers for just 2,413 companies, according to Japan’s Ministry of Commerce. Another 44,000 were abandoned. More than 55 percent of those were still profitable when they closed.
Many of those businesses were located in small towns and cities, where the succession problem poses a potential existential threat. The collapse of a business, whether it’s a major local employer or the only grocery store in a village, can make it even harder for those places to survive the continued depletion of aging populations and the urban exodus that is eroding the countryside.
After a government-led matching program failed to acquire Mr. Yokoyama, a bank suggested he turn to Relay, a company based in Kyushu, Japan’s southernmost main island.
Relay has distinguished itself by appealing to the sense of community and purpose of potential buyers. The ads, which feature radiant owners for sushi shops and rural fields, are designed to appeal to hurried urbanites who dream of a different lifestyle.
The company’s task in Mr. Yokoyama’s case was not an easy one. For most Japanese, the city where his company is based, Monbetsu, which has a population of about 20,000 and is shrinking, might as well be the North Pole. The only industries are fishing and farming, and they largely go into hibernation as the days shorten and snow piles up to eaves. In the dead of winter, some tourists come to eat salmon roe and scallops and see the floes of ice that make their way into the town’s modest harbor.
A street lined with 1980s cabarets and restaurants is a snapshot of a more prosperous time when young fishermen gathered to blow off steam and spend large wages. Today, faded posters are peeling off abandoned storefronts. The city’s largest building is a new hospital.
In 2001, Monbetsu built a new primary school building just around the corner from Mr. Yokoyama’s business. It closed after only 10 years.
The classrooms used to be filled with grandchildren of local dairy farmers. But their own children have now largely moved to the cities in search of better paying, less stressful work.
Without clear successors, the farms went bankrupt one after the other. Decades of high inflation as a result of the pandemic and the Russian war in Ukraine have led dozens of survivors to take early retirement.
As local farmers age and their profits decline, more of them have come to depend on Mr. Yokoyama for tasks such as harvesting hay and clearing snow. His days start at 4 am and end at 7 pm. He sleeps in a small room behind his office.
It would be “extremely difficult” if his business failed, said Isao Ikeno, the manager of a nearby dairy cooperative that has moved heavily to automation as it becomes harder to find workers.
On the farm of the cooperative, 17 employees tend to 3,000 head of cattle and Mr. Yokoyama’s company fills the gaps. No other area company can provide the services, Mr. Ikeno said.
Mr. Yokoyama started thinking about retirement about six years ago. But it was not clear what would happen to the company.
Although he had taken on just over half a million dollars in debt, years of generous economic stimulus policies have kept interest rates at record lows, easing the burden, and the company’s annual profit margin was about 30 percent.
The ad he posted on Relay acknowledged that the job was tough, but said no experience was necessary. The best candidate would be “young and ready to work”.
Whoever was elected would inherit the debts, as well as all of the company’s equipment and nearly 150 acres of prime farmland and forest. Mr. Yokoyama’s children get nothing.
“I told them if you want to take over I’d leave it to you, but if you don’t want to I’ll give it all to the next guy,” he said.
Thirty applications poured in. Among those who showed interest were a couple and a representative of a company that was planning to expand. Mr. Yokoyama settled on a dark horse, 26-year-old Kai Fujisawa.
A friend had shown Mr. Fujisawa the ad on Relay, and Mr. Fujisawa immediately jumped into a car and showed up at Mr. Yokoyama’s doorstep, impressing him with his youth and enthusiasm.
However, the transition has not been smooth. Mr. Yokoyama is not entirely convinced that Mr. Fujisawa is the right person for the job. The learning curve is steeper than they could have imagined, and Mr. Yokoyama’s grizzled, chain-smoking employees are skeptical that Mr. Fujisawa will be able to live up to the boss’s reputation.
Most of the company’s 17 employees are in their 50s and 60s, and it’s not clear where Mr. Fujisawa will find people to replace them when they retire.
“There’s a lot of pressure,” said Mr. Fujisawa. But “when I came here, I was willing to do this for the rest of my life.”