Japan for Sustainability Newsletter #060
'Green Servicizing Businesses': Recent Developments in Japan
In their book, "Natural Capitalism: Creating the Next Industrial
Revolution," Paul Hawken and Amory and Hunter Lovins suggest that one of
four principles of natural capitalism is shifting to an economy where
value is consumed in the form of service. The JFS Newsletters of June
2003 and April 2006 ran stories of Japanese companies that were shifting
from selling products to providing the services or functions that would
otherwise be provided by products.
In March 2007, the Environmental Industries Office (under Japan's
Ministry of Economy, Trade and Industry, Japan) published a report
titled "Green Servicizing Businesses -- A New Society Being Created by
Businesses Focusing on Function." The report describes the findings of
studies and performance of model projects conducted by the ministry
since fiscal 2005, as well as actual conditions and problem faced by
green servicizing businesses that are emerging in Japan. The following
is a summary of the report.
What is "green servicizing"? As used in Japan, "servicizing" refers to a
shift from the sale of products to the provision of services, that is,
focusing on the functions of products and providing these functions as
services. In Europe, this kind of approach is also called a "product
service system" or PSS. The term "green servicizing" incorporates the
aim of reducing environmental impacts by reducing the amounts of
resources and energy required during production, delivery and
consumption, and by reducing the number of products that end up being
discarded after use.
Since green servicizing is still a new concept, a variety of definitions
and classifications are being proposed for the term. The scope of the
term may also expand in the future as new types of business emerge.
Below we describe five different models of green servicizing businesses.
The first three models are material services that provide mainly
material products. The last two are non-material services that provide
(1) Service Providers Own and Maintain Products
Service providers are responsible for maintenance of products during
their useful life, under modified contracts. Examples include the rental
or lease of products, pay-per-use for copying or laundry machines, and
waste treatment or recycling under contract.
(2) Users Enjoy Advanced Maintenance and Effective Use
Users own and maintain their products, but service providers offer
enhanced maintenance services, new designs or technologies to prolong
the life of the products. Examples include repairing, reforming,
upgrading, inspection and maintenance services, and trade-ins and sales
of used products and parts.
(3) Joint Ownership of Products
Joint ownership decreases the number of products needed in society, thus
reducing resource consumption and environmental burden. Examples include
car sharing and joint use of farm machinery.
(4) Substitution of Products with Services
Services are used as substitutes for resources. The use of information,
knowledge and labor leads to a reduction in environmental impacts
otherwise caused by the consumption of resources. Examples include music
distribution services, and management of digital images.
(5) Enhanced Services and Value-Added
Strategies to enhance the efficiency of services and value-added help
reduce environmental impacts of the services. Examples include better
coordination of waste treatment, and energy service companies (ESCOs).
For green servicizing businesses to succeed they must clarify the
differences between conventional and new business models, and enhance
value for service users, service providers and the environment.
For service users, advantages of the green servicizing businesses
include labor-saving and convenience, usefulness of integrated services,
economic efficiencies due to cost reductions and so on, plus a sense of
security and reliability due to proper guarantees. Advantages for
service providers include the potential to reach growing markets and to
boost profitability. In terms of the environment, examples of benefits
from this kind of business include energy conservation, reductions of
carbon dioxide emissions, resource conservation, and risk reduction due
to proper management of hazardous chemicals.
There are already many green servicizing cases in Japan, and the numbers
continue to grow every year. The ministry's report lists more than 70
cases. Here we introduce some of them.
Starway Co., based in Tokyo, offers environmentally friendly packing and
delivery services. Using recyclable and reusable packing boxes, the
company provides integrated services including delivery, packing,
monitoring, and supply of environmental data.
Conventionally, most logistics companies have been responsible only for
delivery operations, and customers have packed their parcels and managed
delivery data by themselves. Starway has developed a box dubbed "E-Star
Pack" and started offering overall comprehensive services including
delivery, packaging and data management, using these boxes repeatedly
instead of selling them outright.
As a result of this integrated service system, owners of packaging
materials are transformed from customers to providers. Starway has
succeeded in expanding its business both to the upstream processes of
"materials management" and "packing," and to the downstream process of
This service also allows customers to reduce the number of man-hours
needed for packaging and material management, the cost of packing
materials, and expenses for disposing of used materials. Furthermore,
customers do not need storage spaces for packing materials and can cut
the cost of data management. In environmental aspects, the service
contributes to resource conservation and the reduction of waste, since
packing materials can be used repeatedly and cushioning materials are no
longer needed thanks to the unique structure of the "E-Star Pack" box.
Other examples include a distributor of work uniforms that leases the
uniforms to companies for employees to use, and then collects, reuses,
and recycles the material after they are worn out. Meanwhile, an
electrical goods manufacturer offers a fluorescent lamp leasing service,
called "Light and Trust Service," in which it sells the "function" of
comfortable lighting to factories and office buildings rather than
fluorescent lamps themselves. An air-conditioning service incorporates a
leasing scheme for air-conditioning systems, and payments are calculated
based on the amount of air controlled by the air conditioning system. A
rental service provides reusable eating utensils, mainly at public
events. A supplier of pure water supply services installs its ultra-pure
water production system at the site of client companies, when then pay
for expenses calculated based on the amount of water used.
There is also a unique distribution method for over-the-counter
medicines in Japan. This practice, initiated by drug producers in Toyama
Prefecture long ago, is a "use first, pay later" service, in which a box
filled with the medicines are placed to the customer's home free of
charge, and later the customer pays for actual consumption. Following
this practice, some companies have launched similar services. A company
provides over-the-counter medicines and other daily necessities to
customers on consignment; sales personnel visit their homes and receive
payment only for what has actually been consumed. For a confectionery
manufacturer, service personnel periodically visit a contracting
company's office where a container for sweets and a freezer for ice
cream snacks has been placed, in order to restock the products and
collect payment for what has been consumed.
As for a service to provide added value, Zojirushi Corp. leases special
electric kettles equipped with a built-in wireless communication device,
dubbed "i Pot." This service is the combination of a monitoring service
and a household appliance leasing service, by which a family can receive
information through the Internet about when the "i Pot" is used by an
elderly family member living alone. In effect, the service is providing
the peace of mind of knowing that the relative is active.
One example of "substituting services for materials" is a musical score
printing service by Yamaha Music Media Corp. Using their own computers,
customers can purchase and print any musical score they like and pay for
it by credit card. This practice enables Yamaha to eliminate its stock
of musical scores and minimize the consumption of paper. The company can
also reduce the use of energy resources needed to print and ship its
musical scores in paper form.
According to the ministry's report, "incorporation of new fields based
on supply chain management" and "expansion of the share of existing
businesses by tightening relationships with them" are the factors in the
success of the green servicizing businesses. The report also points out
that, in order to expand such businesses, it is crucial to (1)
collaborate with client organizations, (2) cooperate and coordinate with
existing businesses, (3) emphasize the benefits of reducing
environmental impacts, and (4) try to change customers' preconceived
ideas, including the desire to own possessions.
Backed by efforts to pursue new business models, an increasing awareness
of the importance of reducing environmental impacts, and tougher
environmental regulation, new green servicizing businesses will continue
to emerge and evolve through trial and error. Japan is likely to see the
approach of "selling a function and a service rather than a product"
ever more often in the future.
(Written by Junko Edahiro)
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