Hikari Tsushin
Corporate History & Strategy

In February 1988, Yasumitsu Shigeta dropped out of Nihon University and, after four years of part-time work, established Hikari Tsushin Inc. at age 23. The backdrop to the founding was the liberalization of the telecom market that began with the privatization of NTT in 1985. New operators including DDI (now KDDI) entered the market in succession, but none had their own sales networks and relied on external agencies for customer-facing sales channels. A business opportunity for sales agency work arose in the period between carriers and customers, as Shigeta started the business with door-to-door sales of telecom equipment.

Initially starting with door-to-door sales of home telephones, the company signed an agency contract with DDI six months after founding. The agency model of delivering products and services developed by telecom carriers to end customers on the carriers' behalf required no in-house product development or inventory, enabling a business structure based solely on salesforce. In the late 1980s, when telecom equipment adoption rates were rapidly increasing, the number and speed of sales channels determined market share, and Hikari Tsushin's business model, armed with sales personnel, was aligned with market conditions.

In 1990, Hikari Tsushin expanded its business from telecom equipment agency work into door-to-door sales of copiers, business phones, and other OA equipment. The primary products handled were Sharp-manufactured, and a sales partnership was built with Sharp, which held a lower position in the office equipment market relative to Ricoh, Canon, and Fuji Xerox. For Sharp, which was at a disadvantage in direct sales networks for large enterprises, the SME market developed by Hikari Tsushin was a segment where competing major manufacturers had limited presence—an alignment of mutual business interests.

The attack list used for SME sales was the information on approximately 5.3 million companies listed in the 'Town Pages' telephone directory published by NTT. Since it was publicly available information, there were no entry barriers, but virtually no other company had systematically organized the effort of cold-calling listed companies to set up visit appointments and selling products face-to-face. Hikari Tsushin used this open data as the starting point for sales, establishing an approach of deploying a massive salesforce to develop the dispersed SME market that individual major manufacturers found too costly to cover.

In the latter half of 1993, NTT implemented long-distance call rate reductions, and as mobile phone terminal prices declined, NTT and DDI shifted from the conventional rental model to a buy-out model. The change to a system where terminals were sold directly to consumers created a business opportunity for retail operators separate from the mobile carriers to serve as sales channels. Hikari Tsushin viewed this change as the arrival of a market where "almost everyone will use them in the near future" and decided to shift its focus from conventional OA equipment door-to-door sales to store-based mobile phone sales.

In May 1994, Hikari Tsushin opened the first "HIT SHOP" mobile phone retail store in Shinjuku, Tokyo. The HIT SHOP revenue structure consisted of two layers: reception commissions (approximately 43,000 yen) received from mobile carriers upon acquiring new contracts, and stock commissions where 300 yen per unit was deposited monthly over contract periods of 5-10 years. The structure where growing user numbers directly translated to layered revenue growth provided the economic rationale for store expansion as a growth strategy.

In March 1998, Hikari Tsushin decided to shift its emphasis from the previous directly-operated model to the franchise model in order to accelerate store expansion. Under the franchise model, franchise owners bore the store-opening costs, while Hikari Tsushin collected fees from the franchisees. By suppressing its own capital deployment while increasing the pace of store openings, the franchise model enabled expansion of the store network to match the rapid growth of the mobile phone market. Hikari Tsushin leveraged the capital and labor of franchise owners scattered across regions to pursue nationwide expansion at a pace that would have been impossible with directly-operated stores alone.

The shift to the franchise model proved effective, and by December 1998, HIT SHOP reached 1,816 stores. A nationwide retail chain combining directly-operated and franchise stores was built in a short period, backed by the surge in mobile phone subscribers in the late 1990s. Having preemptively secured sales channels during the market's growth phase, the strategy was successful, and Hikari Tsushin recorded revenue of 259.2 billion yen for the fiscal year ending December 1999. Yasumitsu Shigeta achieved his stock listing at age 32, realizing listing on the First Section of the Tokyo Stock Exchange in September 1999.

However, the rapid expansion through the franchise model inherently contained structural risks. Hikari Tsushin imposed stringent contract acquisition quotas on franchise owners, and failure to meet quotas risked termination of the franchise agreement with Hikari Tsushin. Under a structure where store survival was directly tied to quota achievement, some franchise owners and employees engaged in fictitious mobile phone contracts, using a practice called 'parking'—keeping inactive phones in storage to ride out the six-month period during which penalty fees would be owed to the carrier. When this problem surfaced in 2000, Hikari Tsushin recorded 20 consecutive days of limit-down.

The HIT SHOP case demonstrates the duality of a recurring revenue structure that both guaranteed the rationale for rapid expansion and structurally generated excessive pressure on the franchise owners supporting that expansion. As stock commissions accumulated, the value of existing contracts increased, creating a cycle that justified investment in new acquisitions. However, for individual franchise owners, this growth pressure became the incentive for misconduct, resulting in both the acceleration mechanism for growth and the fuse for collapse being embedded in the same business model.

Stringent quotas for new mobile phone contract acquisitions were imposed on HIT SHOP. At the franchise stores that comprised the vast majority of the 1,816 stores, failure to meet quotas risked termination of the franchise agreement with Hikari Tsushin, and fraudulent methods to achieve apparent quota fulfillment proliferated at the sales frontline. The method known as 'parking' involved contracting mobile phone terminals with no actual users and storing them in warehouses to ride out the six-month period during which penalty fees would be owed to the carrier.

When the reality of these fictitious contracts was exposed in early 2000, Hikari Tsushin's social credibility rapidly collapsed. President Yasumitsu Shigeta initially claimed that 'it is unlikely that agency operators would actively participate in parking' and 'we are rather the victims,' but the fact that fictitious contracts were widespread across franchise stores could not be denied. The quota structure that Hikari Tsushin imposed on franchise owners itself had the aspect of inducing misconduct, and the claim of victimhood was not accepted by the market.

The impact of the fictitious contract problem extended to the financial results, and Hikari Tsushin was forced to issue repeated downward earnings revisions throughout 2000. The stripping away of fictitious contracts that had been padded at franchise stores caused actual contract numbers to shrink dramatically, undermining the premise of stock commission revenue. Trust from carriers was also damaged, and the business foundation of HIT SHOP itself was shaken.

Hikari Tsushin decided on large-scale closures of HIT SHOP stores. First, 1,041 stores were targeted for closure, and the shift from franchise to directly-operated operations proceeded. Ultimately, including directly-operated stores, 2,600 stores were closed, and by 2003, the company restarted as the 'SHOP Business' with a scale of 394 stores. The vast majority of the store network that had been built as a nationwide mobile phone retail chain just a few years earlier disappeared, resulting in the abandonment of virtually the entire store network.

The mass closures involved substantial extraordinary losses. In the fiscal year ending August 2002, 51.5 billion yen was recorded as extraordinary losses for lease termination fees related to store closures. Additionally, 10.3 billion yen in provision for investment losses was recorded for venture investments executed during the internet bubble era as investee company stock prices declined. Combining HIT SHOP closure losses and venture investment valuation losses, Hikari Tsushin faced extraordinary losses totaling 68.5 billion yen.

However, Hikari Tsushin avoided financial collapse more due to the outcome of its asset holdings than management decisions. The company chose to sell SoftBank shares acquired during the bubble era to offset losses. In the fiscal year ending August 2000, 80 billion yen in gains on sale of investment securities was recorded, offsetting the 68.5 billion yen in losses from HIT SHOP and venture investments. As a result, Hikari Tsushin secured a net profit of 5.07 billion yen for the fiscal year ending August 2000, avoiding a net loss and collapse.

The HIT SHOP scandal triggered a fundamental improvement in Hikari Tsushin's financial structure. Interest-bearing debt of 230.8 billion yen as of end-March 2000 was compressed to 37.3 billion yen by end-March 2003 through bond redemptions and loan repayments. Cash flow improvements from store closures and funds obtained from SoftBank share sales provided the resources for debt reduction, achieving a rapid financial restructuring that reduced approximately 190 billion yen in interest-bearing debt over three years.

The stock price crash inflicted severe damage on Hikari Tsushin. The stock price, which had driven market capitalization past 3 trillion yen in early 2000, recorded 20 consecutive days of limit-down after the fictitious contract problem was exposed, plummeting to 1/100 of its value over approximately eight months. This stock price collapse was not limited to Hikari Tsushin alone and is positioned as the trigger for Japan's domestic internet bubble burst.

After the HIT SHOP scandal, Hikari Tsushin effectively withdrew from store-based mobile phone retail and chose to return to its founding origins of corporate OA equipment door-to-door sales. The closure of 2,600 stores and reduction to 394 meant the abandonment of the rapid expansion model through franchise operations, and Hikari Tsushin's business model structurally transitioned from store-based retail to door-to-door sales by sales personnel. This strategic shift led to the intensification of copier sales and mass hiring of sales staff from 2003 onward.

After the management crisis caused by the HIT SHOP scandal, Hikari Tsushin decided to return to its roots in corporate sales. The policy was established to redirect surplus personnel from mobile phone retail to the copier sales division for corporate clients. The copier business was selected as the axis for rebuilding because of its revenue structure that generated recurring fees based on copy usage in addition to the initial sale commission, producing ongoing cash flow after each transaction.

Hikari Tsushin's relationship with manufacturers also supported the business transition. Since 1990, the company had a business relationship with Sharp for OA equipment sales, and continued to primarily handle Sharp products. For Sharp, which held a lower position in the office equipment market relative to Ricoh, Canon, and Fuji Xerox, the ability to develop the SME market through Hikari Tsushin's salesforce in segments where major players' direct sales were limited was an alignment of interests. The agency model of purchasing products from manufacturers and selling them to SMEs through salesforce became the core of Hikari Tsushin's business.

Hikari Tsushin's corporate business specialized in maximizing the frequency of contact with SME owners by deploying large numbers of sales staff. The customer list used was the information on approximately 5.3 million companies listed in NTT's Town Pages. Since it was publicly available information, entry barriers did not exist, but virtually no competitor systematically organized the effort of cold-calling listed companies to set up visit appointments and closing sales through in-person visits.

Hikari Tsushin standardized its sales activity into a pattern of 'morning telemarketing, afternoon visits.' Mornings were spent on telephone sales to prospects, pitching copier sales while collecting operational data on target companies' copier types, lease periods, and daily copy volumes in 5-6 minutes per call. Accumulated data was used to identify lease expiration timing, enabling optimally timed sales pitches. The database grew to cover approximately 7 million companies, forming the foundation for improved sales efficiency.

Afternoons were allocated to 5-6 customer visits per day. While the number of visits itself was not high, because visits were made to prospects who had agreed to meetings during morning telemarketing, the close rate was high, with 'about 50% resulting in contracts once an appointment is made.' The combination of telephone-based information gathering and in-person visits supported sales efficiency. In the copier market where product differentiation was difficult, Hikari Tsushin reduced sales from an individual skill to an organizational mechanism based on contact frequency and data utilization.

In June 2003, a dual representative director structure was established to formally pursue management rebuilding, positioning corporate OA equipment sales as the core business. The distinguishing feature of Hikari Tsushin's sales model was that it did not require advanced product knowledge. In a market where purchases were determined not by copier performance differences but by 'whether a salesperson visited and made a proposal,' deploying inexperienced young staff still secured a certain close rate. This structure became the foundation for a salesforce premised on mass hiring.

To strengthen the sales organization, Hikari Tsushin implemented mass hiring as the default approach to securing personnel. As of 2003, approximately 1,500 employees were hired annually to expand the SME sales workforce. Mid-career hiring offered positions in 'corporate solution sales' with conditions of 'no experience required' and 'fixed salary of 260,000 yen or more + commission,' taking an approach that did not require prior sales experience. The recruitment message 'looking for energetic people who want to challenge anything' reflected Hikari Tsushin's sales culture that valued activity volume over skills.

However, the demanding sales environment led to over 1,000 annual departures. Under a compensation structure with a high proportion of commission, personnel who could not produce results found it economically difficult to sustain themselves and naturally fell away. Hikari Tsushin chose to continue mass hiring to compensate for this attrition. As a result, high personnel turnover with 1,500 hired and over 1,000 departing annually became the norm, and Hikari Tsushin became widely known as 'a company with tough sales and high turnover.'

This cycle of mass hiring and mass departure served the function of keeping the sales organization perpetually 'young, energetic, and untainted by established business customs.' In March 2004, the company returned to net profitability, with the recovery in earnings realized through expanded copier sales. The structure where each copier sale generated commissions plus recurring income was a mechanism where revenue expanded in proportion to the volume of salesforce deployed, and this steady accumulation became the driving force behind the management rebuild.