Ernest Higa has made a successful business career bringing US products to Japan. He did this by leveraging his bicultural background to build and sell multiple businesses, including Domino’s Pizza. This is his story….
Higa is a third generation American citizen of Japanese descent. Born in Hawaii in 1952, Higa received an international education — elementary school in Switzerland, high school in Japan (The American School in Chofu), college at the University of Pennsylvania, and for his postgraduate studies an MBA at Columbia University. At twenty three he returned to Japan and went to work for one of his father’s businesses while studying the Japanese language by night.
At high school in Japan, Higa did not concern himself with learning the Japanese language or culture. Now entering the workplace, Higa knew if he was going to succeed here, he would need to learn Japanese and to a degree become Japanese. “Learning the language is critical to being successful in Japan — more so is understanding the culture and the Japanese mentality,” said Higa. “Still, you can never become Japanese.”
Learn he did. Although never completely mastering the language (he speaks only formal Japanese), Higa managed to combine his understanding of Japanese culture with American entrepreneurship. “As I started to learn about Japan, I realized I knew more about Japan than most Americans and vice versa. There is a huge cultural gap between Japan and the United States. I arbitrage that cultural gap and turn it into a business opportunity.”
Three years later, aged 26, Higa started his first business. The big trading companies (sougou shousha) were importing logs they cut into lumber at Japanese sawmills. They had to import because Japan, a country with abundant forests, did not do proper forestation — so the trees did not grow large enough. Also, the trees were located in hard to access, mountainous areas. The sougou shousha were throwing out 50% of what they spent on duty and freight due to low sawmill yields. Higa reasoned that if he could import finished product cut in overseas sawmills, he could compete with the sougou shousha.
Higa had spotted a niche where he could leverage his bicultural expertise. Not only were lumber specifications different in Japan, but the quality of lumber differed as well. In America, quality is determined by the lumber’s strength. In Japan, quality is determined on a visual grade as well as strength; the wood has to look good too. Higa believes Japanese homemakers are behind this. “When you buy a house here, unlike in the United States, at least three generations will be living there. It is a big investment. A housewife will be at the construction site every day when the house is being built. She is not an expert on structural strength, so she goes by what she can see and thinks is good — I think that is how that developed. Also size tolerances are more strict in Japan. Trying to bridge that gap, I talked to the sawmill guys in Oregon. I told them it has to look good and can only have +/- 1 mm tolerance. They were baffled. They said, ‘We’re not making steel here, Ernie. You’ve got to be crazy.’ There was this culture gap. It was difficult, but that was my raison d’être because not everyone was doing that.”
Higa began vertically integrating backwards, buying sawmills and timber holdings in Canada and Northern Europe. He grew the firm into one of the largest, if not the largest, importer of finished lumber in Japan with distribution networks from Hokkaido to Kyushu supplying the major homebuilders. When the sougou shousha started to copy his business model and he was no longer operating within a niche, Higa sold the business.
For his second venture, Higa spotted another niche where, again, he could leverage his bicultural expertise. This time he targeted the medical device business with a product which was already successful in the US. The product was a neurosurgical implant. Before he could start to sell, Higa had to obtain costly and time-consuming approvals from the Ministry of Health and Welfare (kouseisho). He had to build a laboratory, hire technicians, and conduct animal tests to establish human compatibility. He also had to secure difficult to obtain government approvals for medical products. Higa persevered figuring that unlike lumber, where specifications differed, at least Japanese and American brains were the same.
After making the up-front investment and finally getting the needed approvals, he found that Japanese neurosurgeons approach this type of surgery differently. Neurosurgeons kept asking for different kinds of shapes and specifications. When Higa asked the US manufacturer to make the requested changes, they said, “Ernie, you’re new to this business. You’re probably wrong because we sell in the US and throughout Europe.” They didn’t want to cooperate.
Finally, Higa convinced the manufacturer to adapt their products to the Japanese market. “We ended up with the number two market share in that niche,” said Higa. Eventually the business was sold to a company specializing in heart surgery that wanted to get into the neuro area.
Higa now knew what his personal strengths were. The common theme was leveraging his bicultural background and bringing products from successful companies to Japan. “I bring the knowledge of the Japanese market. I’m not an inventor. If a product exists and it’s very good, with my skill set I can bring that to Japan and try to make it successful here,” Higa said.
Applying the above, Higa approached Domino’s Pizza. Domino’s was already a successful company in the US, but they were not successful on a global basis. They were failing in Australia, Canada and the United Kingdom. According to Higa, this was because Domino’s Pizza approached foreign markets within a “one-size-fits-all” and “it should all be done like in America” mind-set. “The real answer,” said Higa, “is to think global and act local. If you take a country like Japan, it’s very different. Tom Monaghan, founder of Domino’s, insisted everything should be the same, which is twelve toppings and one drink (Coke then). ‘Keep it simple,’ Monaghan said. Also, he did not franchise to third parties. What that meant was you started off as a driver and worked your way through Domino’s to earn your right to have your own franchise. I wasn’t going to start out as a driver at Domino’s. But I told Tom, ‘I can learn Domino’s quicker than you can learn Japan. Trust me on this.’ He wasn’t quite convinced so we went back and forth. Finally, he sent his vice president to Japan. I’ll never forget this — He said, ‘Ernie, all the signs are in Japanese.’ I said, ‘Yeah, it’s different.’ Then he said, ‘There are no street names. And the housing numbers are not sequential.’ I said, ‘Yeah, there are few.’ He said, ‘How do you find anything?’ I said, ‘You use landmarks. So, now you realize you can’t do it like in Ann Harbor, Michigan, where Domino’s is headquartered. It’s quite different here.'”
In 1985, Higa became the master franchisee for Japan and Monaghan’s test case to see if they could franchise to somebody who did not grow up through their system. Twenty five years later, Higa sold Domino’s, then a chain of 180 stores, to Bain Capital.
About the same time, in 2010, Wendy’s had pulled out of the Japanese market. They wanted to get back into Japan and through the American Embassy sought out Higa’s advice. “I thought I would give them my two cents,” said Higa. He ended up investing a bit more, in what was to become a 51% / 49% joint venture. Higa held the decisive shares to have the last call on adaptation in Japan. “Previously they didn’t adapt that much to Japan and tried to maintain the same model as in the US,” said Higa. “I did not think a company then based in Atlanta would know what was right for Japan.”
Higa has chosen not to compete directly with McDonalds. Instead, he’s trying to develop a new market segment called “fast casual” — another niche. This segment offers fast service as does McDonalds, but with food quality a notch or two upscale. “It’s an expanding market in the US restaurant industry but yet to exist in Japan,” said Higa. For the 59-year-old Higa, taking on Wendy’s and pioneering fast casual is a personal challenge. “I’ve got the concept of bridging the cultural gap as almost a science. Wendy’s is the next test.”
Ernest Higa is Chairman and CEO of Higa Industries Co. Ltd. In addition to being the operating partner of Wendy’s Japan, Higa Industries separately owns an ethnic food importing business that sells to major chains, supermarkets and convenience stores. www.higaind.jp
Beacon Reports reveals Japan through the lens of thought leaders. Subscribe free!