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Founder’s message

Acknowledge the adulation of America, and watch closely the true reality of Japan

Kiyoshi Aoki

Haruna Group
Honorary Chairman / Founder
Kiyoshi Aoki

■The path America has followed

This is how history repeats itself.
One of the trends of today can be seen in America venturing to create crisis conditions – notwithstanding the problem on the Korean Peninsula. Every ten years America’s economy has to consume an enormous amount of military stock, or else it will overflow. If that happens, Lockheed Martin and other large military supply enterprises will head into trouble, upsetting the foundation of American industry. For Panmunjom also, a wall that won’t come down like the Berlin wall, eventually it will probably be demolished, however it has long been at the mercy of America’s geopolitical strategy. Even if both nations even wanted it demolished, it hasn’t been possible.
Since the Korean War, America’s farsighted and deeply-laid geopolitical plan has been most certainly at work. The withdrawal of the American military from the Peninsula will not be easy. Even if South Korea wanted it, America will need to settle the battle for supremacy with China.
Of crucial importance in America’s Asia strategy is in how it will secure political and diplomatic honor and profit with the next super power, China (which also encapsulates the people of Greater China).
Let’s look at the beginning of the 21st Century. Around a hundred years ago the internationalization of the dollar ($) began in the 1920s. However, today America’s withdrawal from superpower status has been prominently sighted, and the beginning of a change in the fabric of history is being suggested. In other words, America is repeating the road that was once trodden down by Britain’s pound (£). Britain, in the middle of the 19th Century, had a close-to 40% monopoly on the world’s manufacturing industries. That dropped to 18% by the end of that century. Britain, having had its manufacturing dominance collapse, turned their national interests to financial supremacy and by the end of the century the pound currency occupied around 60% of the world’s trade, and close to 40% of foreign currency reserve. It was unquestionably the world’s predominant international currency. Thus, Britain’s road from manufacturing power to financial power is mainly being similarly run through America’s national policy.

■Through America’s three war economies

The “customer” has singularly become America
Well, how about Japan? From shortly after being defeated in the war up until the beginning of the Korean War, the fundamentals of national security between America and Japan were reviewed. The world moved towards the Cold War system, and the American-Soviet conflict brought about military bases across the Japanese Islands, from the North to Okinawa in the South. In this war, Japan carried the role of the “backing division”, and has supplied steel, foodstuffs, and other materials.
These war “special procurements” created profits unforeseen by Japan’s economy, stirring up strong economic activity post-war. With this opportunity, a variety of production factories that had been closed were reopened, and the sun shined on heavy industries such as steel and shipbuilding.
The opportunity to rise from the defeat of war and propel Japan’s economy unquestionably came from the post-war economy. Japan’s revival began from here, and it became the cornerstone for creating the high growth towards the 1960s. The economic activity called war, as is suggested in calling it “special procurements”, has a different environment and conditions from that which establishes an economy, and is an activity only for one-way supply. This is nothing to do with the supply and demand relationship under competition. Consequently, the economic activity called special procurements gave a strong impact whilst creating the foundations of the economy.
In the 40 years between 1950 and 1991, Japan has seen three war economies. The first was in the Korean War, the second the Vietnam war, and the third was in the Cold War. Having been through these war economies, the true cause of the financial strain that occurred at the end of the century is thought to be the misshapen management system “corporate governance” that was brought about by the special procurements cultivated over many years by these foreign economic activities. While concealed in the foundations of the large companies of today, the biggest weakness of Japanese management can be seen in this ‘convoying’

■Japan’s current state of having to be “a second-rate country”

It’s a staggering reality. Japan’s growth in 2018 was the very lowest within the OECD. The cause is seen completely in the non-activity towards the country’s financial crisis. The audacity to let the proportion of GDP raise up to 230% is unheard-of.
From here on, when will we be able to escape from financial deficit? The primary balance and consumption tax will be postponed and the revision of social security costs will also end up untouched. By leaving it without being able to see the future, uncertainty rises even more. The debate as to whether this is permissible needs more spotlight on the national stage.
Of course some of the responsibility lies with us citizens who voted for the Liberal Democratic Party, however no one wishes for an uncertain world. The root lies in the bureaucracy of each ministry that turns the gears of the government and compiles the budget. We can’t afford to allow neglect by the administrators and politicians of this country.
By issuing deficit-covering national bonds, the government over several years has continued to allow financial deficits, and as a result this has produced depletion of savings to buy national bonds. At the time the economic collapse was also predicted, and through the purpose of overcoming the financial crisis they insisted on a 2% inflation rate, and expanded the Bank of Japan’s balance sheet to 497 trillion yen (as of June 22nd 2017) to continue to buy national bonds.
However, in accordance with economic theory this was a mistake. Even now the inflation target of 2% hasn’t been achieved within two years. In addition, if the Bank of Japan’s purchasing was suspended in several years’ time, the price of national bonds would drop, and sudden rises in interest rates would no doubt lead to a financial crisis. The Bank of Japan, without showing prospect of an exit strategy, continues to purchase national bonds at length while enforcing up until minus interest rates.
The policy of minus interest rates is basically something that negates capitalism. Furthermore, the negative effect it gives to the economy is unlimitedly huge. The balance sheets of currency circulation match the GDP, so this is continuing   without being pointed out as abnormal, but the government is not providing an answer to the people’s worries as to what will happen in the near future. The truth is, they are unable to provide that answer.
The debate as to why inflation is necessary is currently not being debated enough. The pretext of “overcoming deflation” is placed right in front, there are the circumstances of the FRB previously aiming for 2% in America, and just like that a number is being assigned.
The fact is, the government, in collaboration with the Bank of Japan, has a strategy of incinerating financial debt under the name of “inflation target”. For quantitative and qualitative monetary easing, the goal is to impose inflation tax and prevent financial bankruptcy. If it comes to inflation, both the people’s deposit value and the government’s debt value will be reduced. If commodity value rises, purchasing power will reduce. The essence of inflation is in the dropping of monetary value, and the fact that the government’s purpose is to increase inflation tax will bring about an unspeakable pain. Even if the increasing of quantitative and qualitative easing forces a drop of the yen and raises stock prices, it will have absolutely no effect in raising the productivity of industry.
Thus, even after around 30 years from the end of the century the period of slow growth continues, but it can be surmised that the basic tone of the world economy for this century will be set by deflation. The cause of zero growth in Japan is being blamed on the phenomenon of economic deflation, however I believe this is a mistake. The true cause is how the rise of productivity shown by growth potential has become sluggish at below 0 to 1%. If one looks at the real conditions of large corporations in these last ten years there are increases in sales written in the press, but the fact is that these are profits born from the accounts of profit totals through overseas businesses, such as benefits from the American tax system. They are not profits earned in the Japanese market.
Short-term business through globalization took away long-term visions from companies – visions that don’t neglect R&D. Now they are once again being recovered, and there’s a need to penetrate deeply into the essence of the problem to figure out how companies ought to continue.

CEOMessage

To all stakeholders,

Asao Aoki

Haruna Beverage Co.,Ltd.
President and Group CEO
Asao Aoki

Haruna Group will soon mark 22 years since it’s establishment. We consider building a good relationship and continuing to make sustainable growth together with all those related to this beverage business, which was the aspiration of the founder from the beginning, including customers, partner companies, the community, shareholders, and employees, as key aspects regarding management, and have been making advancement accordingly. Although the corporate foundation has reached the next stage by means of the support of all stakeholders, as the beverage market environment has reached maturity and is changing drastically, we felt the need to change the management structure in order to fulfill your expectations.
Under such conditions, an organizational restructuring of the company was conducted in April 2018. Management concerning all beverage businesses within Japan were integrated with Haruna Produce, the process of product planning/development to the production at the factories in Takasaki, Tanikawa, and Wakayama, as well as the distribution bases were expanded, and the marketing function of both the customer brand and the Haruna brand has been cross-sectionally strengthened.
In the future, commodity prices, tastes, and health benefits demanded by consumers will continue to diversify. Therefore, as value creation on a higher level becomes necessary, mobilizing the abilities of our employees in creating shared value (CSV), which involves creating value together with our customers, improving existing products, facing and solving issues together, and creating new products as well as business models, is important.
Additionally, having open cooperation and information communization not only within this company but also with partner companies, fully utilizing management resources, and enhancing it’s value from the perspective of customers, is necessary in realizing the above. We are working towards such an open innovation.

The following will introduce some of the achievements of the Haruna Group in 2017.

①Endeavors towards a sustainable growth in the beverage business
A wide variety of beverages, which is the core competence of this company, is being efficiently produced using multiproduct small lots, the quality level and cost-competitiveness is being improved, and we are also steadily progressing towards making a structure that meets the high demand of customers. As a result, the annual number of contracted items by customers(NB, major distributors, retail companies, private-label brands of trading companies) has increased every year reaching approximately 4000 items.

②Reforming earnings structure of corporate factories
One major area we have been working on to recover earnings is the improvement of the ratio of small container products in our factories, and this resulted in a ratio of 41% for this fiscal year which was a 1.4% increase from the previous fiscal year. Also, we have planned and executed the optimal production plan for the entire 6 factories in order to accommodate customers’ multiproduct small lot orders as well as their deadlines. As a result, we reached a production amount of over 30,000,000 for the first time with a total number of 30,750,000 for all 6 factories.

③Overseas beverage production
Regarding HARUNA Asia Thailand which started as a merging company as of April 2017, the Haruna brand Fruit Vinegar 2SKU and the health-oriented soda water 3SKU were released in the beginning of 2018 targeting Japanese CVS in Thailand. As these new genre products are a novelty in Thailand, it has been determined that the market appraisal may take a certain amount of time. We are continuing and proposing various sales promotions and new product planning. As we have already won a spot on the shelf in the convenience stores of a major company in Thailand, we will continue improving our marketing capacity until sales pick up in the future.

④Trying a new genre which adds novelty to health-oriented products
We are creating new demand for newly released products that convey the “familiarity”, “surprise”, and “originality” that can only be found in Haruna products such as the Green Rooibos Tea in addition to the 137 Degrees Almond Milk and the Tropical Fruit Drink, which are both development imports from Thailand.
We will continue to make an effort to set Haruna apart by clear concepts of its taste and originality which will improve the corporate brand and receive the support of consumers.

⑤Efforts towards building an alliance partnership
Regarding the relationship between subcontracting partner factories in Japan to which handle outsource production, we have always strengthened complementary cooperation in aspects such as technology, production, and sales while exhibiting each factory’s originality. In addition, by enhancing the stable supply structure for major private-brand clients, we will build a highly reliable alliance partnership.

⑥Development of customer-oriented group employees
The source of the corporate value of Haruna Group is human resources. Therefore, in order for everyone with various characteristics to work and thrive in the same company, it is important to share the management philosophy, management strategy, and vision, to share work achievements and accomplishments, to experience mistakes and grow from such lessons, as well as to create a work environment where everyone can express their own role in the company.
Bonus payments are appropriately given to employees according to their contribution and achievements, not just according to their work tasks and responsibilities, and by doing so, we are contributing to the personnel investment and development in the “satisfying private life” and “fulfilling work life” of our employees.
Finally, Haruna Group considers the Environment, Social, and Governance factor as the 3 factors that build long-term corporate value. Importance must be placed not only on the value improvement of financial figures, but on environmental issues such as the reduction of energy usage and CO2 emission, work-life balance and diversification, as well as the enhancement of external directors and management supervision and enforcement, which is the clarification of leadership as well as on-site roles and responsibility.
Although we cannot achieve all this overnight, we will continue to enhance our managerial competence and put effort into the personnel development of on-site employees.

We thank you for your support as we continue to grow together in the future.