The Development of Green Servicizing Businesses in Japan

JFS Newsletter No.44 (April 2006)

Introduction

The word "servicizing," which has been adapted into Japanese phonetically and written in katakana characters, first appeared in Japan in the government's "Annual Report on the Environment in Japan 2005." Servicizing refers to providing a service or a product's function rather than the product itself. It aims to reduce environmental impacts by lowering the volume of resource inputs and preventing wasteful resource use, while still allowing clients to enjoy the equivalent value. In Europe, this kind of approach is also called a "product service system" or PSS. Such business models are now attracting attention.

Servicizing is expected to result in appropriate and streamlined resource consumption through a radical reconsideration of the current practice of purchasing and owning products. It is also expected to promote appropriate levels of consumption (or activity) by applying rates according to the frequency or term of use; promote recycling through the recovery of used products by servicizing enterprises; and increase product longevity through maintenance and more frequent use before disposal.

However, the business model of selling a function rather than a product took root in Japan quite a long time ago. One example is a unique distribution method for over-the-counter medicines. This practice started in the Edo Period around the 17th century, lasted for 300 years and still remains in use in some parts of Japan. Sales representatives deliver a box filled with the drugs to the customer's home and then re-visit periodically to receive payment for what has been consumed and refill the box. This business practice was initiated by drug producers in Toyama Prefecture, and expanded nationwide as "use first, pay later" medicines. The sales representative, called "baiyaku-san," (medicine sellers) also used to play a role in distributing local information in the area.

Green Servicizing

The term "green servicizing" is used to refer to business models providing services that are expected to be more effective in reducing environmental impacts, in addition to basic servicizing. It is applied to businesses that contribute to the reduction of resource and energy use during production, delivery and consumption of products, and to controlling the generation of waste in the form of used products. Let us introduce how such businesses have developed in Japan.

In the field of green servicizing, Interface Inc., a carpeting business in the United States, is well known but as early as 1964, Duskin Co of Japan started marketing chemically treated dust cloths, called "Home Duskin," as well as a rental-system business in which these dust cloths were collected, processed and reused.

According to Duskin's "Green Report 2004," the company rents out about 880,000 mops and mats a day. It collects the mops and mats and carries them to factories where they are washed and repaired; out of the 880,000 items, 850,000 (96 percent) are reused and 30,000 (4 percent) are added to the processed items, which are then returned to the rental cycle. The 30,000 end-of-life items are used as resource materials, until they are finally added to the dust collected and recycled as fuel for manufacturing cement.

Aside from renting mats and mops that use an absorbent to collect dust, this company also rents out air purifiers, dust collectors and deodorizers. Because the products are regularly collected, repaired and maintained, customers can fully enjoy their function without purchasing them. Moreover, original new technologies to improve durability and ease of repair have extended product lifetimes. A system to recycle used products has also been established.

Using products over and over throughout their whole lifetime in a rental system confers the benefit of saving resources while customers enjoy the functions and services provided by the products. The company aims to further promote their recycling-oriented business through rental services.

Another example of green servicizing is an effort in the housing industry. In Japan family houses are rebuilt on average after 30 years, generating about 40 tons of waste material per house. Many housing builders have started to recycle and reduce the waste material generated when they scrap houses, and one company, Seikisui Kagaku Kogyo, has developed a system to reuse scrapped housing material for rebuilding homes.

In 1970 this company put the "Sekisui-heim," a single-family house built with a unit construction method, on the market and sold a total of 550,000 houses by fiscal 2004. In this unit construction method, houses are considered as a collective entity of rectangular solids called "units." Features of the interior and exterior of each unit and associated facilities are built in at the factory, and the units are assembled on site to build houses. This way, about 80 percent of the construction process is completed in line operations at the factory. It is said to have the advantages of thorough quality control and short delivery time.

The company's rebuilding system offers Seikisui-heim home owners who would like to rebuild their houses a service in which the company accepts a trade-in, disassembles the houses into units and delivers the units to the factory for repair, replacement, and an update of the built-in facilities. The company re-sells it as a "rebuilding system house" at about 70 percent of the cost of a new house, with a guarantee equivalent to that for new homes. This system allows reuse of about 85 percent of the housing materials, except for the kitchen and bathroom facilities and interior.

Since the rebuilding system started in May 2002, about 50 houses have been rebuilt as of September 2005, reusing about 700 tons (weight base) of construction materials and recycling about 1250 tons of foundation concrete and reinforcing steel.

This system rewards both old house owners who can trade in their houses, and rebuilt house buyers who can obtain a house at a low price. The company is receiving more and more rebuilding orders, and is now examining the possibility of expanding the rebuilding system to apartments.

Green Servicizing Model Business

Meantime, in fiscal 2005 the Japanese Ministry of Economy, Trade and Industry (METI) launched a new plan, the "Green Servicizing Model Business." This plan aims to help promote business activities for building a sustainable society in the 21st Century through discovering and supporting leading green servicizing businesses that are expected to contribute to reducing environmental impacts while creating a new, competitive business model.

The ministry chose three model businesses from 42 applicants. The performance results of these businesses' activities between August 2005 and February 2006 were published in March 2006. The ministry is now accepting applications for model businesses for fiscal 2006.

Among the three businesses chosen in 2005, Unifolk Co. proposed a project to "create business models that enable sales agents of corporate uniforms to effect reuse of uniforms." In the existing system, uniforms are simply sold to customers, who must dispose of the used uniforms. Unifolk suggested changes to this system in the form of a leasing service project to create a system in which Unifolk leases uniforms to client companies, and then collects, reuses and recycles the uniforms. Such a system would ensure cost-saving for the client companies and generate economic benefits for sales agents, while helping control the large quantities of uniforms that are presently discarded.

According to a report delivered at the model business debriefing meeting, the cost incurred by clients under the leasing system was lower, amounting to about 90 percent of the cost of buying uniforms outright. In this case, the assumption was for a three-year period of uniform rental and use by a company with 100 employees. The economic effect on a market size comprising Shikoku Island where Unifolk is based was calculated at about 13 billion yen (or about 111 million dollars). Environmental impacts were also reduced by 84 percent in terms of CO2 emission volumes, with only 255 kg of uniforms being disposed of compared to 1618 kg for the complete disposal of 100 sets of uniforms.

The report also claimed that the model business succeeded in building recycling partnerships within the region, and could promote resource recycling and generate advantages from using processed raw materials. Unifolk plans to launch full-fledged sales and marketing operations in the spring of 2006.

Unifolk says the challenges ahead in promoting green servicizing businesses include: creating systems such as billing systems for leasing businesses; communicating about the value offered by leasing systems and the advantages of recycling, for example by presenting in specific figures the reduced burden on the company's disposal and management activities, and the contribution being made to reducing environmental impacts; and securing funds to keep up the business until the rental sales cycle is established.

Conclusion

The idea of servicizing, that is, not insisting on "owning" products but instead focusing on their "functions," will become increasingly important in our quest for a sustainable society. Efforts by individual companies are important, but undertakings involving communities and whole industries will also be necessary. Servicizing can be considered a movement that promotes the de-coupling of "ownership" and "happiness" in a society where people can be happy even if they do not own much.

(Staff writer Kiyoshi Koshiba)