What the U.S. Can Learn from Uniqlo

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Rich country, rising unemployment, sluggish growth, big debts. Sound familiar? Japan’s notorious “lost decade,” the long stretch of economic stagnation that followed its massive property bubble in the late 1980s, looms large in the American mindset today. A lot of people think we may be headed down the same path.

The parallels between what happened to Japan and what’s happening to the U.S. have inspired a flurry of teaching points on what not to do next. The latest come from Tadashi Yanai, the mastermind behind Uniqlo, the discount Japanese clothing brand whose stores have spread across the globe like wildfire at a time when Japan’s economy and many Japanese companies are staring into the abyss. In the latest McKinsey Quarterly, Yanai focuses on what still struggling Japan can learn from Uniqlo’s success. But a lot of those lessons can also be applied to the U.S. Here’s a sampling of what Yanai has to offer:

1. Don’t look down on developing countries

Japanese companies seem to have their eyes in the rearview mirror. They have become introspective. I think we should get back to something more like we were at the end of the war when Japan rose to prominence from a situation in which it had nothing. (It was during this period that Fast Retailing got started, in 1949.)

We’ve lost that spirit, maybe because we are under the illusion that we are rich and superior. But many countries are just as rich, and in Japan, income has stagnated for many people for a decade or more. Japan is still very comfortable to live in, if you are Japanese. But there’s a difference between being comfortable and being viable. We are gradually losing our viability.

When it comes to negotiating our way through the global economy, the U.S. still thinks it has the upper hand. That’s why, for instance, we lost the battle over rebalancing to the Germans and Chinese at last year’s G20 meeting in Seoul, South Korea. Treasury Secretary Tim Geithner went into the meeting hoping to put caps on those countries’ surplus trade and savings rates by roping in the support of other countries struggling to compete with cheap Chinese and German exports. Instead, the U.S. discovered the rest of the world was more upset about its loose monetary policy. And in doing so, it lost the epic battle over increasing the value of China’s currency, not to mention a lot of its sway with developing countries. Despite their own beef with China’s shady economic practices, those countries have edged further into its camp. Letting go of our arrogance in global fora will be key to forming the kinds of partnerships we need to win back ground in global economic debates.

2. Leadership means working the global sales floor

One thing Japan has to get rid of is the idea that things are one way here and different everywhere else. The Japanese are really strong at home, and incredibly weak away from home. We need Japanese who are strong away, or who don’t distinguish between home and away. We’re trying to build this idea into Uniqlo’s culture. For example, English is spoken at business meetings with foreigners, and we want all emails to be in English in a few years…

My advice for young Japanese is simple: get out of Japan. One of our weaknesses as Japanese is our ineptness at communicating with other cultures. Even people who speak English well are closed off psychologically. They don’t speak frankly like I do. There’s this uniquely Japanese standoffishness, this hesitancy to become too involved. And it’s detrimental to globalization.

I was recently talking with Kishore Mahbubani,  author of The New Asian Hemisphere:
The Irresistible Shift of Global Power to the East
, about what U.S. multinationals struggle with most in trying to tap into Chinese markets. His answer? They don’t employ enough people who speak China’s language(s). Last he checked, there were 1 million American high school students studying French, and only 40,000 studying Mandarin. Language skills in this country are supply-driven not demand-driven, he said, because people aren’t open to what’s happening in the rest of the world. Meanwhile, China is en route to having more English speakers than the U.S. has in the next 20 years. Why? Because, says Mahbubani, “they want to connect with the rest of the world.”

3. Don’t work backwards

We saw food distribution as a backward sector, so we went into partnership with a food group, Ryokuken, in 2002. But vegetables are not an industrial product; you don’t know exactly when they will be ready or in what volume. We eventually understood that it would be impossible to succeed unless we ran our own farms, and we did not want to be farmers. After two years, we shut operations down.

The recent upswing in commodity prices, coupled with the Fed’s quantitative easing program, weakened the dollar and led a boom in U.S. manufacturing. And some take that as a sign that we’re getting back on track economically. Construction equipment, mining equipment, and oil-producing gear are seeing higher profit margins, while the boom in soft commodity prices has created a nirvana moment for U.S. farmers and farm equipment manufacturers. But relying on a commodity price boom isn’t a viable route to increasing economic growth. People in non-farming states across the U.S. are being squeezed by higher food and gas prices, which manufacturing and farming prosperity doesn’t offset. One need only look to developing economies reliant on agriculture to know that, even when global demand is steadily on the rise, the good times in commodities frequently come and go. Just like Uniqlo, we do not want to be farmers (or low-end manufacturers) if it distorts our competitive edge. Even though manufacturing profits are up, jobs in the sector have been experiencing a steady decline for decades. As I laid out several weeks ago on this blog, steady growth in U.S. jobs and incomes comes from building on trade-able skills, not stoking commodity bubbles and manufacturing swings through monetary hocus pocus.

4. Don’t give up your national identity

We opened our first store outside Japan in 2001, in London. And we failed spectacularly. We quickly opened 21 outlets in Britain—and shut down 16 of them by 2003. In retrospect, that was probably good, because we learned so much. Our big mistake was to try to do things the British way. We never capitalized on our strengths…

All this sounds pessimistic, but I don’t see this as the counsel of despair. Japan has everything—people, goods, money, technology, information. As a nation, we are honest, hard-working and serious…

Even if we experience failure, we can pick ourselves up and try again. That’s what Uniqlo did—and that is what Japan can do…

One of the U.S.’s biggest strengths has always been its optimism. The can-do attitude of Americans is so powerful that some studies show it has actually contributed to as much as a 1% boost in U.S. GDP. And yet, recent polls show as many as 50% of Americans are pessimistic about the economy and about the potential of the next generation to do better than this one. Of all countries in the world, this is one that knows well how to make something from nothing. We cannot allow the fear of losing what we already have paralyze us from making the tough choices we need to get back on track.