Religion Mixed With Business in Japan Company : Pacific Rim: Yaohan International Chairman Kazuo Wada, one of the few executives critical of his country, said he was inspired to move his headquarters to Hong Kong.

Four months after Chinese troops bloodily suppressed pro-democracy demonstrations in Beijing’s Tien An Men Square, the headquarters of Yaohan International moved from the sleepy countryside town of Numazu, Japan, to Hong Kong.

The decision made Yaohan the only Japanese company listed on the Tokyo Stock Exchange to have moved its international headquarters overseas.

Yaohan Chairman Kazuo Wada, 62, said the move was religiously inspired. A former Communist who says he has meditated every morning for the last 40 years, Wada claims that he bases all his business decisions on religious principles.

“Meditation enables me to understand what I should do,” said the head of the distribution company that runs 115 department stores and supermarkets through 60 affiliates in 12 countries.

Wada is a rare Japanese executive who is critical of Japan, using some of the same arguments often heard from Americans. Established as a company only in 1962, Yaohan has paralleled the uphill struggle that many foreign firms have experienced in trying to expand here, in part because of Japan’s infamous Large Retail Store law. Originally designed to protect mom-and-pop stores, the law wound up protecting the interests of established supermarkets and department stores against newcomers, such as Yaohan, Wada complained.

Heaven has not always smiled upon Yaohan.

The firm’s original store--a mom-and-pop vegetable shop set up by Wada’s parents in 1930--burned to the ground in 1950. Its first overseas venture in Brazil in 1971, launched on the urgings of a spiritual leader, ended in bankruptcy.

Still, with often off-beat decisions, Wada has expanded his firm’s global sales to $2.1 billion--including a significant presence in the United States. Now he is looking ahead to the biggest spurt ever--to $7.4 billion by 1997.

In April, after three hours of conversations with Chinese officials on his first visit to Shanghai, Wada committed himself to one of Yaohan’s biggest-ever investments: about $60 million in a $100-million shopping center in Shanghai.

“I had intended to take a look at the location and, if I thought it was good, begin negotiations. But the Chinese said yes to everything I requested,” he explained.

Even before the Shanghai shopping center is completed in 1995, Yaohan will open its first department store in China in Shenzhen, adjacent to Hong Kong, in July. Yaohan agreed to purchase a 49% equity interest in an existing department store that is being renovated.

In the United States, Yaohan has made a name for itself as a purveyor of Japanese and Asian food, goods and culture with markets in Fresno, San Jose, Torrance, Los Angeles and Costa Mesa. The firm procures most of the Japanese food that it sells at its American outlets from the United States and exports about $30 million worth of American food to its outlets in Japan and other Asian countries.

Yaohan also owns an Edgewater, N.J., shopping center and is planning other expansions in the United States. A London shopping center, set to open this year, will mark Yaohan’s entry into Europe.

Yaohan’s overseas outlets have more floor space and handle a larger volume of sales than its stores in Japan, where it ranks only 16th in sales among chain-store companies. Business in Japan, however, still represented 62% of the group’s total sales of $2.16 billion last year “because of the high prices in Japan,” according to Mitsumasa Wada, 53, the chairman’s brother and executive vice president of Yaohan International.

Eventually, two-thirds of Yaohan’s sales will come from overseas operations, he predicted.

This year, sales will grow to $2.8 billion from $1.65 billion in 1989--a period during which Yaohan has enjoyed “the biggest growth in its history,” Chairman Wada said in an interview at Yaohan’s Guest Housein Atami, 65 miles southwest of Tokyo. By 1997, the company hopes to hit the magic plateau--for a Japanese firm--of 1 trillion yen ($7.1 billion) in sales, he added.

New outlets and mergers and acquisitions will spearhead the expansion, he said.

Religion, the chairman insisted, remains the guiding force behind all of the expansion, although Wada as a youth firmly believed in the Marxist doctrine that “religion . . . is the opium of the people.”

As a teen-ager after World War II, he wanted to be a diplomat “to work overseas and make friends with people around the world.” His parents, however, made that goal impossible by sending him to schools specializing in commerce.

“My parents wanted me, as the eldest son, to take over their business,” he said. “They also thought that because Japan had lost the war, there was no point in becoming a diplomat.

“I thought that taking over the family business would be the end of my life.” Denied the opportunity to prepare for foreign service, “I stopped studying completely and joined the Communist Party.”

For 2 1/2 years, he remained a party member and was eventually expelled after leading campus movements against tuition increases and professors who had supported Japan’s emperor system during World War II.

His mother, he said, was appalled. She got him reinstated only by promising to “cure” his communism. A believer in the teachings of Seicho no Ie (House of Growth), a sect founded in 1930 that claims 840,000 members in Japan and 1.1 million others overseas, she arranged for the transformation at a training center of the sect.

Wada said he went not to seek “salvation” but to “stage a Communist revolution at that place. But it was I who wound up being converted.”

As a Communist, he believed “the revolution we were seeking was to save poor people by seizing riches from the bourgeoisie and dividing them among the poor . . . to bring about a society of peace. But the Seicho no Ie people believed that love, consideration for others and forgiveness would create a society of peace,” Wada said.

Seicho no Ie’s spiritual approach won out over communism’s materialism, he said, even though the sect had grown rapidly during the war years by preaching the emperor worship that Wada had opposed as a student.

“There were many things (in the sect’s teachings) with which I could not agree,” Wada said. “What I was interested in, however, was whether the heart comes first or whether materialism comes first.”

Now, however, Wada said he subscribes to the Seicho no Ie belief that all life pivots upon a nucleus and that “for a country, something like a president as the nucleus is necessary.”

“The person who becomes the nucleus has to have the heart of a god,” he said. It is the same belief that led to emperor worship.

Wada said he applies Seicho no Ie teachings, such as the need to rid oneself of ego, to business dealings with customers, suppliers and employees. “If you can rid yourself of ego, you can understand the person with whom you are dealing.”

Full-time employees in Japan have been given the opportunity to buy Yaohan stock at bargain prices. They also put in a four-day week on a flexible time schedule, a rarity in Japan. None of Yaohan’s 16,000 employees, 10,000 of them overseas, has been forced to join Seicho no Ie, but all job applicants, foreign and Japanese alike, are handed a booklet of the sect’s teachings on “how to live,” Wada said.

As part of company training, what Wada called “heart education” for new employees is conducted at Seicho no Ie training centers for five nights and six days, he said.

“Seicho no Ie philosophy teaches that all religions are one--that all religions are wonderful. Therefore, if a person is a Christian, he should pursue Christianity fervently. If you study the principles of Seicho no Ie, you will understand the wondrousness of Christianity,” he said.

Wada saw a measure of salvation even in the disaster of Yaohan’s venture into Brazil, which he said he took on the advice of his own Seicho no Ie spiritual leader. “If we hadn’t experienced that failure, we wouldn’t be where we are today. We learned what a fearful thing ‘country risk’ is. No matter how well one might run a company, if the country itself is in chaos, management efforts are reduced to zero,” he said.

He cited his decision to move Yaohan’s international headquarters to Hong Kong as another example of a Seicho no Ie inspiration. “If we had thought of our own profit, it would have been judged an extraordinarily risky decision. We may, indeed, suffer a great loss. But if Hong Kong returns to China’s control in 1997 in a prosperous condition, that would be the happiest thing for China and for England. For us to go there when others were fleeing was a happy event for Hong Kong people,” Wada said.

Since he and his wife moved to Hong Kong in May, 1990, Chinese business leaders have offered him opportunities that would not have been available had he and Yaohan stayed in Japan, he said.

Wada admits there was an earthly incentive, as well.

“On profits earned overseas, taxes cost only 16.5% in Hong Kong. If those profits were brought to Japan, taxes would be 50%,” the chairman said. And in Japan, establishing a holding company such as Yaohan International is illegal, he added.

His judgment that the southern Chinese region adjoining Hong Kong will become a center of future growth also figured in the decision, he said, noting, “I thought the flowering of south China would come in the 21st Century. Now, it appears it will come about five years earlier.”

After the Tien An Men Square incident, “the people in Hong Kong concluded that China would renege on its promise to Hong Kong to allow ‘one country, two systems’ and permit capitalism to continue for the 50 years,” Wada said. “I reached the opposite conclusion.

“Because of the Tien An Men incident, American and Japanese managers left China . . . abandoning factories and leaving hotels that were in the midst of construction.”

Because of the damage they suffered, the Chinese now know that if their promises about Hong Kong are not honored, “Beijing will be completely isolated from the rest of the world. Beijing absolutely won’t make that choice. Therefore, Hong Kong’s future will be all right for 50 years,” he said.

With land prices crashing in Hong Kong after Tien An Men, Wada bought a 50-story skyscraper for his headquarters building.

Yaohan’s original motive in moving into overseas operations, he said, was to become “the distribution industry’s Sony.” Facing electronic giants in Japan, Sony found it hard “to break down the walls at home. After succeeding in the United States and Europe, they came to Japan and were able to gather funds and talented staff,” he said.

For Yaohan, overseas expansion has outstripped growth at home because of the Large Retail Store Law, Wada said.

“In Japan, it took nine years to open up some outlets. Overseas, you could act immediately,” he said. “I am really embarrassed. Here I am opening up outlet after outlet overseas, and foreigners try to open up stores in Japan and can’t. There is no law so stupid as that (the retail law).”

Under pressure from the United States, Japan’s Parliament revised the law earlier this year to ease restrictions on establishing retail outlets. “But we still don’t know how much change will occur. We will be able to set up new outlets, but the floor space will still be regulated,” said the chairman’s brother, Mitsumasa, in a separate interview.

Chairman Wada also condemned Japanese bureaucrats for refusing to lift import restrictions that “keep prices high in Japan.”

Like foreign distributors, Yaohan has also been dissuaded from investing in outlets in Tokyo and Osaka by prohibitive land and rent costs, Mitsumasa Wada said. Yaohan is planning to establish small speciality shops in the capital, however, he added.

Widowed 18 years ago, Wada’s mother, Katsu, 84, serves as “supreme adviser” to Yaohan and often travels overseas to help train foreign employees. Forced by a typical pre-World War II family arrangement to marry Ryohei Wada, a green grocer whose education ended with elementary school, she made sure that all five of her sons got a college education--if not always in the specialties they wanted, Chairman Wada said. All of the brothers hold positions in Yaohan or its affiliates.

And if Wada had gotten his wish to become a diplomat?

“I’d probably be retired today,” he said.