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No one was more surprised than Masahiko Uotani, former CEO of Coca-Cola Japan, when in 2014 Shiseido invited him to head one of Japan’s most traditional companies. The cosmetics conglomerate had never looked outside the company for leaders in its 150-year history.
Shiseido, whose 32 brands include Elixir, Clé de Peau Beauté and Drunk Elephant, was struggling to grow. Marketing specialist Uotani-san was tasked with boosting its appeal and turning around its fortunes.
Since then he has helped transform Shiseido into a global brand, appealing to a new generation with its emphasis on whole-body health and wellbeing, finding new ways to enhance the prestige of its luxury brands.
In London, for Baillie Gifford’s November 2022 Japan Forum ‘Unlocking Japan’s Upside’, Uotani-san sat down for a ‘fireside chat’ with investment manager Iain Campbell to discuss the renaissance of a Japanese icon.
Iain Campbell: What was your reaction to being asked to be CEO of Shiseido?
Masahiko Uotani: I thought that a company as traditional as Shiseido hiring an outsider for the first time was a big symbol of change in Japan.
I knew it wasn’t going to be easy, but I felt Shiseido could become more global to be more successful and could act as a showcase to other Japanese companies. That was what motivated me to take the risk. I made it my mission to make Shiseido a truly global company, not just in terms of its sales outside Japan, but with a more international business culture, employing talented people from other parts of the world. Shiseido has been around for nearly 150 years. My role was to ensure it could last for another 150.
IC: You were open from the start about the scale of the challenge, and that a lot of investment would be needed. How did the market react?
MU: The first investor I met was in the US. He said "Uotani-san, we’ve been betrayed by Shiseido for years. We’ve been waiting for someone like you to change it overnight. I expect you to reduce headcount by 30 per cent tomorrow.”
I replied “If that's what shareholders expect, I'm the wrong guy. I'll do everything I can, but it will take time.”
I discussed with my management team how, after struggling with $6bn revenue and a 3 per cent operating margin, we should set an objective of $10bn revenue and a 10 per cent margin by 2020. Their initial concern was that if we try to do that and fail, we would embarrass ourselves. Then they said, OK, this can be an aspiration but we're not going to make an announcement. I announced it. That pushed us into a corner!
It took us three years to clean up the biggest issues. First, we invested in brand innovation and talented people from around the world. Then we accelerated sales growth, and with time we had more money to invest. After seven years of almost no growth, everybody could see the change. We were able to achieve our $10bn revenue and 10 per cent margin targets well in advance.
IC: The turnaround was as much about innovation as cost cutting. There’s a lot of science in cosmetics. How do you stay ahead of that?
MU: I refused to cut investment in skin research and, along with our longstanding partnership with Harvard Medical School, we’re working with other medical and healthcare companies on how skin relates to the health of the whole person. It’s a more holistic view of beauty.
When I joined, research and development (R&D) investment for product development was only 1.8 per cent of total sales, I increased it to 3 per cent and increased the number of researchers from 1000 to 1500.
I also increased localisation. People are different by region and by country. Although we set out to be a global company, localization is really important. We invested $400m in a new Global Innovation Centre in Yokohama while expanding innovation hubs in Paris, Shanghai, New Jersey, and Singapore which work closely with local universities to understand differences in skin types.
IC: China is very important to your future. Is it experiencing the same high-quality skincare trend as Europe and can Shiseido meet that demand?
MU: Chinese and Japanese are from the same Asian tribe, and Shiseido’s knowledge and technology are reasons Chinese consumers identify with our brand. When they could travel to Japan, we had the highest share of Chinese inbound demand. It’s a struggle now because of Covid but China is becoming the world’s largest beauty market, set to exceed the US, as obviously the population is four times bigger. We see that market growing for us, and the next important phase for us will be India and the ASEAN countries, especially Vietnam. We benefit from a strong ‘look-to-Japan’ dynamic.
IC: Could tensions between Japan and China potentially affect your business?
MU: In a consumer business, all that’s needed is for people to connect with our brands. Whatever happens in politics, we’ve got to develop these interconnections.
Even in recent phases of US-China tension, the American brand Estée Lauder did good business in China. Business is business. Consumers are free to choose their brand and many Chinese are loyal to ours.
IC: Why was it so important for you to take more advantage of the travel market?
MU: Travel retail is growing. There are 1.2 billion people travelling internationally every year and that’s growing by 4 per cent a year, so 15 million new travellers are generated every year. Big airports are being built, offering entertainment, eating and shopping experiences. When I joined Shiseido I asked why we weren’t more aggressively developing the travel retail business. Our share of this was less than $200m back in 2014. Talking to one of the big retailers in Hong Kong I found that our share there was only 1.25 per cent whereas another competitor had 10 per cent. But they were only 1.5 times bigger in terms of total company size not eight times bigger, so we were completely underdeveloped. We hired an experienced person from a global French cosmetics company to head this division and moved its headquarters from Paris to Singapore where we hired local travel retail experts. The travel operation became a $1bn business within six years. Obviously, Covid has suspended that, but when we get back to normal, I think we can achieve a $2bn business by 2027.
IC: It’s astonishing that all you had to do was notice the pent-up demand and get the right person in place.
MU: There was an adverse Japanese way of thinking at work here which we had to change. When I asked why we weren’t proactively going after that terminal business like our competitors I was told ‘well we have traditional Japanese customers and they don't like it’. But had they talked to consumers? Because when they’re travelling around, they feel and behave differently, and often want to buy a souvenir or a gift. And once we created more opportunities for consumers to buy in the airports, when they go back home they become loyal users of our brand.
IC: Shiseido's board scores highly for gender diversity. Why is this important to you?
MU: Just as customers are changing and suddenly don’t want exactly the same brands and products as others, we felt our own thinking needed to be more diverse. When the Japanese economy was booming in the 1970s and 80s, everybody had to be on the same page. Japanese workers were dedicated, diligent and unquestioning. That gave Shiseido a cost advantage and also a quality advantage, and it’s the basis for our success now.
I’m used to working with women, so it was natural to promote a more diverse team at Shiseido. This would seem natural for a cosmetics company, but when I joined, we only had only one female in the management team. I changed that and now 46 per cent of board members are female.
We also have diversity in nationality. Japanese companies need different types of people. My experience at Coca-Cola gave me confidence about this. When I was CEO there I had six different nationalities reporting to me. It meant management meetings usually lasted longer than you’d expect in a Japanese company.
IC: How about the use of English?
MU: If you’re trying to get talented people of different nationalities to work together, lack of English is a big disadvantage. In 2018 I worked to make English the common language at Shiseido headquarters. All our management meetings would be done in English, presentations should be in English. I provided free training to 3,000 people, free for two years, investing over $50m a year. When people said in excellent English: 'I'm not good at English and therefore I’ll speak Japanese', I told them to be more courageous.
IC: Shouldn’t we also recognise the many strengths of traditional Japanese business DNA?
MU: Japanese companies are strong in people and technology – you’ll see that if you visit our plants. The standards of cleanliness reflect the contribution of workers to the high quality of the products. But an area of weakness in Japan is marketing, communication to global markets, and branding in the consumer areas, particularly in the food and beverage, cosmetics, toiletry and personal care categories. Now Shiseido has become a more valuable brand, the 34th in the world, according to Euromonitor Research. I'm not just expressing pride about this, I'm telling other Japanese CEOs about the huge untapped opportunities that come from getting out there and going global using your own assets. We have to communicate better.
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