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Executive Summary

The following report is an examination of the Far East Asian country of Japan. This report includes a look at the past, present, and future of Japan’s economic stance, cultural values, and business opportunities. Our group examined the relations between the Georgia-based insurance company AFLAC, and their Japanese counterparts. This report explains AFLAC’s strategic motives and successes they have found in doing business in Japan. It also identifies some of the weakness and threats that are in the near future if current practices are not altered. With over 70% of the revenue coming from the Japanese market, AFLAC should be concerned with any changes in economic forecasting for the country as it will be sure to have a direct effect on the future of AFLAC U.S. Japan has long been, and continues to be a major ally to the United States in terms of business relationships and cultural influences. Our report serves to outline some of the noteworthy things to consider when conducting business with the Japanese. Through an examination of AFLAC’s individual experiences in Japan, this report demonstrates the need for professional businesspersons to be aware of the countries cultural, personal, and business preferences. With the increase in the age gap of Japan’s population, in addition to the change of workforce demographics, it is becoming increasingly more important for U.S. businesses to consider expanding their products and/or services to the Japanese marketplace.

Geography

One of the most industrialized nations, home to Hiroshima and Nagasaki, land of the rising sun, Japan has gained many superlatives over the years. Located off the East coast of Asia, Japan is an archipelago comprised of four main islands, from North to South: Hokkaido, Honshu (the largest and most populous), Kyushu, Shikoku, and over 3500 smaller islands. This Far Eastern country has an area of 377,835 square kilometers nearly equivalent to Germany and Switzerland combined. Its nearest neighbors are Korea, China and Russia. Japan’s placement on the globe and its length contribute to a variety of climates in different regions. Japan’s climate varies from tropical in south to cool temperate in north. About 75% of the Japanese land mass is mostly rugged and mountainous, while 87% of the country's surface is covered with forests. Japan's mountainous topography limits the total area available for both agriculture and housing. On the arable land (11.64%), the population density is among the highest in the world. Most people are concentrated on the flat land along the coast (About 80 million of the urban population is heavily concentrated on the Pacific shore of Honshu and in northern Kyushu). The Japanese islands are criss-crossed by short, swift rivers. Seas were once the major means of transportation, but modern Japan has superb internal systems, including railway lines, subway systems, enormous bridges and tunnels to connect this island nation. Japan, which lies in a zone of extreme crustal instability is home to 10% of the world's active volcanoes. As many as 1,500 earthquakes are recorded yearly, minor tremors occur almost daily in one part of the country or another, causing slight shaking of buildings. Because Japan is completely surrounded by water and has many volcanoes, it is prone to natural disasters. Undersea earthquakes also expose the Japanese coastline to danger from a tsunami. Enormous typhoons that cause floods and mudslides are also common in Japan. Earthquakes, volcanic eruptions, tsunamis and typhoons are all too familiar to Japanese people. Extensive civil defense efforts focus on training in protection against earthquakes, in particular against accompanying fire, which represents the greatest danger. Japan is a resource-poor island country. Mineral resources are meager. Japan has inferior coal seams, little iron ore, with virtually no domestic oil supplies. Imported oil, however, is the major source of energy.

Demographics and Cultural/ Social environment

| | | |
| |Population |127.7 million |
| | | |
| |Religion |Observe both Shinto and Buddhist 84%, other 16% (including Christian 0.7%) |
| | | |
| |Language |Japanese |
| | | |
| | |total population: 99% |
| |Literacy |male: 99% |
| | |female: 99% |
| | | |
| |Ethnic Groups |Japanese 98.5%, Koreans 0.5%, Chinese 0.4%, other 0.7% |
| | |total population: 82.02 years |
| | |male: 78.67 years |
| |Life Expectancy |female: 85.56 years (2007 est.) |
| | |0-14 years: 13.8% (male 9,024,344/female 8,553,700) |
| | |15-64 years: 65.2% (male 41,841,760/female 41,253,968) |
| |Age Structure |65 years and over: 21% (male 11,312,492/female 15,447,230) (2007 est.) |
| | | |
| |Fertility Rate |1.23 children born/woman (2007 est.) |
| | | |
| |GDP per capita in U.S. dollars |$33,100 (2006 est.) |
| |(2004) | |
| | | |
| |GDP (PPP) |$4.218 trillion (2006 est.) |
| | | |
| |Labor force: |66.44 million (2006 est.) |
| | | |
| | |agriculture: 1.6% |
| |GDP - composition by sector |industry: 25.3% |
| | |services: 73.1% (2006 est.) |
| | | |
| | |Among world's largest and technologically advanced producers of motor vehicles, electronic |
| |Primary Industries: |equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, processed |
| | |foods |
| |Current account balance: | |
| | |$174.4 billion (2006 est.) |
| | | |
| |Exports - commodities: |Transport equipment, motor vehicles, semiconductors, electrical machinery, chemicals |
| | | |
| |Exports - partners: |U.S. 22.8%, China 14.3%, South Korea 7.8%, Taiwan 6.8%, Hong Kong 5.6% (2006) |
| |Imports: | |
| | |$524.1 billion f.o.b. (2006 est.) |
| | | |
| |Imports - commodities: |Machinery and equipment, fuels, foodstuffs, chemicals, textiles, raw materials |
| | | |
| | |China 20.5%, US 12%, Saudi Arabia 6.4%, UAE 5.5%, Australia 4.8%, South Korea 4.7%, Indonesia |
| |Imports - partners: |4.2% (2006) |

With 127.7 million people, Japan is the tenth most populous country in the world. The population is heavily concentrated in its six major cities, Sapporo, Tokyo, Yokohama, Nagoya, Osaka, and Fukuoka. Japan's population density has helped promote extremely high land prices in these cities beyond comparison with those of other nations, making mortgage or rent payments a great burden on the average citizen. Most Japanese residential property is too small for a lawn or garden. Tokyo (Capital) the home to Disneyworld and Tokyo International Airport has one quarter of the total population. Japan faces the same problems that confront urban industrialized societies throughout the world: overcrowded cities, congested roads, air pollution. Shinto and Buddhism are Japan's two major religions. They have coexisted for several centuries and have even complimented each other to a certain degree. Most Japanese people consider themselves Buddhist, Shintoist or both. Religion does not play a big role in the everyday life of most Japanese people today. The average person typically follows the religious rituals at ceremonies like birth, weddings, and funerals. They may visit a shrine or temple at the New Year and participate at local festivals (matsuri), most of which have a religious background. The official language in Japan is Japanese with two chief dialects, Hondo and Nanto while it also has three forms of writing, Kanji, Hiragana and Katakana. Japanese is the sixth most spoken language in the world, with over 99% percent of the country's population using it. Amazingly, the language is spoken in scarcely any region outside Japan. Japan is a family-oriented society, where people believe that they are a part of a group. The group is the nation, family, school, office, etc. So sometimes the decision-making process is long and tedious because people seek the approval of the group before making the decision. Japanese children are taught to act harmoniously and cooperatively with others from the time they go to pre-school. This can hinder when doing business in Japan because people tend to seek approval of everyone in the group, especially the elders. Japan has a literacy rate of 99%, and ranks as one of the most highly educated nations in the world. The Japanese educational system, established during the Allied occupation after World War II, is one of the most comprehensive and effective in the world. Children's lives in Japan are really organized around the education system, far more than American children's lives are. Their time is taken up by not only school, but going to after-school training, and simply preparing for competitive entrance exams.
. By world standards, the Japanese enjoy a high standard of living, and nearly 90 percent of the population consider themselves part of the middle class. Most people express satisfaction with their lives and take great pride in being Japanese and in their country's status as an economic power on a par with the United States and Western Europe.
Japan’s traditional arts and customs, such as the tea ceremony, flower arrangement and bonsai, sumo wrestling and the martial arts, and performing theater like Kabuki and Noh, portrays the rich culture of Japan. Other traditions and customs include the soaking bath, the simple outdoor group dance called Bon-Odori, origami paper folding, bonsai, woodblock prints, painted folding screens, and decorated pottery and porcelain. Japan has a particularly homogenous population. Less than 2% of the population is non -Japanese primarily as a result of strict anti-immigration laws. The largest minority group is the Koreans, which make up only 0.5 % of the total population. Other minority groups such as the Chinese, Okinawans, Ainu, and foreign residents account for about 4 % of the population or about 5 million people. In Japan, as in most Asian societies, gender roles have traditionally been clearly delineated. Women are placed in subservient roles particularly in business and politics. At the upper echelons of most professions there are very few women. Japanese men are known to be uncomfortable dealing with women in business affairs. The women's roles in contemporary urban life really included raising children and managing the household. Upon marriage, the woman was expected to essentially give up her career and devote herself full-time to household responsibilities. Occasionally you find women who do attempt to have a career outside the home, but it's very difficult, and certainly much less common than it is in the United States. Today, Japan has the 3rd highest life expectancy in the world (78 years for men and 85 years for women- estimated for 2006). A key demographic trend with profound implications for Japan in years to come is the aging of its population. Because individual health care expenditures rise rapidly after the age of 60, there will be a substantial rise in spending on health care over the next three decades. As a result of this demographic shift, fewer workers will have to support more retirees, and productivity per worker will need to climb to maintain national output. Although every industrialized country faces this problem, Japan's situation is by far the worst, because Japan has no hope of an influx of youthful immigrants to mitigate the problem. These demographic changes will force Japan to shrink its famously high savings rate, reverse its proud trade surplus, send more industry overseas and take on a more active, high profile foreign policy. Government has taken steps to adjust to an aging population by expanding health and welfare services for the elderly. The aging of the population is likely to be accompanied by a general shift in the focus of the economy toward leisure, including travel, in order to cater to retirees. Japan's demographic problem has its roots in decreasing birth rates and longer life spans. Japan’s post-war baby boom was followed by a period of declining fertility, facilitated by increased access to family planning as well as liberal abortion laws. For example, in 1948 the government established the Eugenic Protection Act, legalizing abortions. By 1985 these policies had lowered the birth rate. A baby boom echo peaked in 1973, after which the birth rate resumed its fall, so by the 1990’s; the government was concerned about a new problem, stagnant population growth. Figure 2.3 below shows the slow change in the population pyramid over the past and future 50 years:
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Because the total fertility rate in 2006 is 1.2 births per woman, considerably lower than the replacement level of 2.1, the rate of growth will diminish each year as the gap between births and deaths narrows. Infant mortality, which is currently 2.8 deaths per 1000 births, is also one of the lowest in the world. If the trends of the last few decades continue, the population is expected to begin declining after 2015.

Economy

Economic growth in Japan has not always been steady on a number of occasions, such as after its defeat in WWII, during the oil crises of the 1970's, and after the collapse of the bubble economy in the early 1990's. Although Japan has had to overcome these major economic hardships, its current recovery appears to be stable. Japan is named the fourth-largest economy in the world in purchasing power parity (PPP) terms and the second largest in terms of GDP. At current exchange rates, Japan's per-capita gross domestic product (GDP) in 2006 is $33,100, only slightly below that of the United States, a resource-rich country with 25 times as much land and twice the population. Japan's annual output is almost equivalent to that of Germany and France combined. It is roughly three times the annual output of China, and eight times that of India. Overall, however, the Japanese market still remains a challenging one, reflecting the high quality demanded by Japanese consumers and the difficulties of doing business in an environment that remains opaque. The Tokyo Stock Exchange is the biggest in the world by market capitalization after New York. But this figure masks a decline (In the 1980s it accounted for over a third of the world total but now it is less than a tenth). Japan is among the world's largest and technologically advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, and processed foods. Japan is also the world's second largest market for information technology equipment and services (telecommunications, computers, peripherals, software, and multimedia). Its Industrial sector makes up 25.3% of its GDP (2006). Japan’s industrial sector is heavily dependent on imported raw materials and fuels. Productivity is far lower in protected areas such as agriculture, distribution, and services. Agriculture makes up only about 1.6% of the GDP (2006). The most important agricultural product in Japan is rice and it is grown on most farmland, and intercropping is common in Japan. The tiny agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Japan is also known as world's largest fishing nation and seafood is essential to its food industry. Japan’s service sector has larger shares (73.1%) of GDP and employment than the manufacturing sector, and its weight is continuing to grow. Industries such as medical care, welfare services and corporate services are hiring growing numbers of workers. Labor inputs in service industries are increasing, but productivity is tending to stagnate. Japan's labor force consists of some 67 million workers, 40% of whom are women. Due to demographic pressures, geographers suggest that more women will enter Japan’s shrinking labor pool. Even though women’s labor force participation has been growing, it remains lower than in the United States. Demographic pressures and the structural changes in the Japanese economy are also beginning to change the three traditional Japanese employment practices: lifetime employment, seniority-based wages, and enterprise unions. Many firms are abandoning both lifetime employment guarantees and seniority-based wages in favor of merit based pay scales and limited term contracts. Also, although labor unions play a role in the annual determination of wage scales throughout the economy, that role is shrinking. The pressing need for Japanese firms to restructure and lower costs has been felt in terms of layoffs or reductions in salaries, wages, and bonuses as well.
Government and Political Environment Japan is a constitutional monarchy having parliamentary democracy. The country’s political system is largely based upon the British system with strong influences from European civil law countries. The chief of state is the Emperor. His role is largely ceremonial. The Prime Minister is the head of the government and enjoys the real executive powers, which include implementation of the law in the country and running the day-to-day affairs. Shinzo Abe is the current Prime Minister elected in a Diet vote in September 2006. Abe is the first Prime Minister to be born after World War II and the youngest Prime Minister since the war. The legislature in Japan is bicameral. The parliament called National Diet consists of: House of Councilors (the upper house) having 242 members elected through a popular vote for six year terms and House of Representatives (the lower house) having 480 members elected through a popular vote for four year terms. The executive branch of government is directly or indirectly dependent on the support of the National Diet, often expressed through a vote of confidence. The people of Japan have considerable political rights. Judiciary is independent in Japan. In the Supreme Court, the chief justice is appointed by the monarch after designation by the cabinet; all other justices are appointed by the cabinet. The main source of the law is the constitution of 1947. The legal system is modeled after European civil law system with an English-American influence. Government-business relations are conducted in many ways and through numerous channels. The most important conduits in the postwar period are the economic ministries: the Ministry of Finance and the Ministry of International Trade and Industry, known as MITI. The Ministry of Finance has operational responsibilities for all fiscal affairs, including the preparation of the national budget. It initiates fiscal policies and, through its indirect control over the Bank of Japan, the central bank, is responsible for monetary policy as well. The Ministry of Finance allocates public investment, formulates tax policies, collects taxes, and regulates foreign exchange.

Trade and diplomatic relationships with other countries in the region and with the U.S. Japan is a major trading nation and one of the largest international investors in the world. In many respects, international trade is the lifeblood of Japan's economy. Japan's biggest trading partner is the United States, next to China, the Republic of Korea, Taiwan, and Germany. Japan’s main export goods are transport equipment, motor vehicles, semiconductors, electrical machinery, and chemicals (which amounted to $590.3 billion in 2006). Japan has the 2nd largest surplus in its export/import balance amounting $174.4 billion in 2006. The most important import goods are machinery and equipment, fuels, foodstuffs, chemicals, textiles, and raw materials. Japan’s principal export partners in 2006 were the U.S. (22.8%), China (14.3%), South Korea (7.8%), Taiwan (6.8%), and Hong Kong (5.6%). China and the U.S. are the main export destinations. The top import partners of Japan are China (20.5%), U.S. (12%), Saudi Arabia (6.4%), UAE (5.5%), Australia (4.8%), South Korea (4.7%), and Indonesia (4.2%). The United States is Japan’s biggest customer and second-largest supplier. In 2006, Japan’s trade surplus with the United States was $88.4 billion. Japan has diplomatic relations with nearly all independent nations and has been an active member of the United Nations since 1956. In addition to its UN activities and its participation in Asian regional groupings (such as the Asian Development Bank), Japan is also involved in worldwide economic groupings largely made up of industrialized nations of Western Europe and North America. In 1952 Japan became a member of the International Monetary Fund and of the World Bank, where it played an increasingly important role. In 1955, it joined the General Agreement on Tariffs and Trade and in 1966, Japan was admitted to the OECD, which brought it into what was essentially a club of leading industrialized nations. Japan has also participated actively since 1975 in the annual summit meetings of the seven largest capitalist countries known as the Group of Seven- Canada, Germany, France, Italy, Japan, Britain, and the United States. Japanese foreign policy has aimed to promote peace and prosperity for the Japanese people by working closely with the West and supporting the United Nations.
Japan and the United States, as the world's two top economic powers have developed close cooperative relations in a wide range of fields: politics, economics, security, science and technology, medical science, education, and culture. All postwar Japanese governments have relied on a close relationship with the United States as the foundation of their foreign policy and have depended on the mutual security treaty for strategic protection. In addition to bilateral economic ties, the U.S. and Japan cooperate closely in multilateral tribunals such as the WTO, Organization for Economic Cooperation and Development, the World Bank, and the International Monetary Fund. Regionally they are involved in the Asia-Pacific Economic Cooperation forum (APEC). Japan's relationship with the United States is likely to remain strong throughout the foreseeable future. Japan is the United States' largest non-NAFTA trading partner. In 2006, the U.S. purchased 22.5% of Japan’s exports (vs. 22.6% in 2005) and supplied 11.8% of its imports (vs. 12.5% in 2005). Japan is a major market for many U.S. products, including chemicals, pharmaceuticals, films and music, commercial aircraft, nonferrous metals, plastics, and medical and scientific supplies. Japan also is the largest foreign market for U.S. agricultural products, with total agricultural exports valued at $9.7 billion. While maintaining its primary relationship with the United States, Japan has diversified and expanded its ties with other nations. After Japan signed a peace and friendship treaty with the China in 1978, ties between the two countries developed rapidly. The Japanese extend significant economic assistance to the Chinese in various modernization projects. China is Japan's second largest trading partner, after the United States, and Japan is China's biggest trading partner. Trade volume between China and Japan hit a record U.S.$211.3 billion in 2006, accounting for 17.2 % of Japan's overall foreign trade, and according to a senior official from the Japan External Trade Organization (JETRO) China is expected to surpass the United States to become Japan's largest trade partner in 2007. China's imports from Japan increased 15.6 % in 2006, compared with 8.8 % in 2005. In 2006 electronic components, vehicles, automotive parts, non-ferrous metals and plastics were popular exports in China. Japanese companies, particularly auto makers, are shifting production to China to take advantage of its lower production costs and shipping the finished goods back to Japan to sell.

JAPAN 101

Now that we have discussed the foundation and background of Japan, let’s take a look at the business environment of the country and the issues that any American doing business in this country should be aware of and prepared for when traveling abroad. First and foremost, before traveling to Japan, one should do a bit of research for the particular region you will be visiting. The following list highlights some of the few simple things to remember when traveling to Japan: • Build Relationships: Do not expect that you will always be able to get “right down to business” on your first trip to Japan. Long distance phone relationships and a few initial meetings may be necessary before even discussing the first line of business. • Learn some Japanese: American business associates are certainly not expected to be fluent in Japanese, but the mastering of a few common phrases goes a long way in showing your Japanese counterparts that you are interested and committed to learning a part of their culture, even if you have trouble pronouncing some of the phrases. They are very forgiving people as long as you show the initiative. • Body Language Skills: It is very important to be able to read body language when doing business with the Japanese, as sometimes the verbal is not very clear. For instance, it is common for the Japanese to say “Hai” in acknowledgement that they understand what you are saying. This is sometimes confused by “foreigners” as agreement. Also, the Japanese do not want to cause conflict or voice extreme negativity, therefore, you really have to pay attention to the tone of the group and watch the non-verbal communication. • Show Formality: The Japanese conduct themselves very formally and expect the same from their American counterparts. One way to show formality is during the greeting. Unlike the American handshake, the Japanese tend to bow toward each other out of respect. Typically, the younger person will bow lower than the other as a sign of respect to their elders. Also, the exchanging of the business cards is vital during a first visit. Referred to as “Meishi”, business cards are treated much more formally than in American culture. It is proper business etiquette to transfer your card with both hands to the associate with his/her language facing up (Japan-U.S. businesspersons usually have cards with Japanese on one side and English on the other). When receiving a card, also take it with both hands and read it before placing it on the table in front of you. Repeat this process with each person until all cards are neatly displayed in front of you. • Communication : Avoid eye contact when possible (opposite of American standard). Most Japanese business people understand a fair amount of English, but remember that it is normally their second language. Avoid using slang or unnecessary jargon as it may confuse or clutter your meaning. During presentations, the Japanese appreciate reiteration and visual examples. They make great use of quality tools such as Pareto diagrams and fishbone charts to illustrate trends. • Punctuality: Keep appointment times when at all possible. The Japanese value promptness. Showing up 15 minutes early for an appointment is the “norm” in a business setting. Notification should always be given if an appointment needs to be delayed or rescheduled. At some point in your business travels in Japan, you are likely to be invited to dinner. The traditional dinner experience with the Japanese can take significantly longer than that of an American business dinner. It is typical for numerous courses to be offered, in conjunction with numerous smoke breaks and informal conversation. Business may not even be discussed during the initial dinner setting. When offered food, accept graciously and try EVERYTHING. It is important to keep an open mind while visiting not only Japan, but any foreign country. The exception to this of course would be for pregnancy or allergy/diet needs. Some other things to remember while eating in Japan are the following: • Never place your chopsticks straight up in your rice bowl. This is considered rude behavior and some cultures state that this signifies a death in the family. • Attempt to use chopsticks. It may be helpful to practice before you travel, but you are not expected to be proficient in their use. It is considered polite just to try to use them. Also, you may just not have the option of using spoons/forks when eating at a traditional Japanese restaurant. When offered something off of the “community” plate, do not use the “eating end” of your chopsticks. Turn them around to the dull end and use that side. • Always lift your cup when it is being refilled and be conscious of your neighbors glass. It is common courtesy to fill their glass if it is empty.
As with most things you will encounter when traveling in Japan, mistakes are too be expected. You will likely do something wrong, but the efforts you do take to learn about and incorporate the Japanese customs into your business will be noticed and appreciated and may lead to future successful business relationships.
Leisure Activities: During your travels to Japan, you may be given the opportunity to experience various leisure activities. This can be a once in a lifetime experience and it is important to keep an open mind while enjoying your free time in Japan. Some of the more popular activities include Kabuki theater (a mixture of opera, playhouse style in America), Sumo Wrestling (equivalent in popularity to football or baseball in America), Karaoke, Tea ceremonies (formal ceremony centered around the tradition of serving/drinking green tea. Business persons may be invited to attend any these activities and should willingly accept and remain social.
AFLAC, INC.
Company Overview AFLAC is a general business holding company that acts as a management company, overseeing the operations of its subsidiaries by providing management services and making capital available. It was founded in Columbus, Georgia by three brothers (John, Paul, and Bill Amos), as the American Family Life Insurance Company in 1955.
In 1964 the company’s corporate name was changed to American Family Life Assurance Company. In 1990 the acronym was formally adopted as the company's name. AFLAC primarily sells supplemental health and life insurance in the United States and Japan. The company’s insurance operations are conducted through American Family Life Assurance Company of Columbus, which operates in the U.S. and as a branch in Japan. AFLAC is one of the largest sellers of supplemental insurance in the U.S. and is an industry leader in Japan's cancer insurance market. AFLAC defines its mission to combine innovative strategic marketing with quality products and services at competitive prices to provide the best insurance value for consumers (AFLAC.com, 2007). The company’s value statement includes: • Offering quality products and services at competitive prices and use new technology to better serve its policyholders. • Building better value for its shareholders. • Supplying quality service for its agents. • Providing an enriching and rewarding workplace for its employees.
Philanthropic Activities
AFLAC is paying great attention to corporate social responsibilities. As a socially responsible company, AFLAC has attended to several social programs and made several contributions to society • AFLAC Incorporated and AFLAC sales associates have contributed over $34 million to the AFLAC Cancer Center and Blood Disorders Service of Children's Healthcare of Atlanta. • In 2004, AFLAC contributed $250,000 to CureSearch toward the Adolescent and Young Adult Programs. • AFLAC has an ongoing commitment to the Child Life Therapy program at the Morrell Center for Childhood Cancer and Blood Disorders, which is housed in the Children's Hospital at Albany Medical Center. • AFLAC has an ongoing commitment to the University of Nebraska Medical Center to establish the AFLAC Fund for Childhood Cancer Patients and Families. • In 1999, AFLAC became a founding sponsor of the American Association of Cancer Research (AACR) and has an ongoing commitment with the AACR to continue and expand the travel awards program and other initiatives designed to meet the needs of early career cancer investigators. • In 1997, AFLAC committed $1.5 million to establish the AFLAC Chair for Cancer Research at USC/Norris Comprehensive Cancer Center in Los Angeles.
National Recognition • In 2007, AFLAC was named to Fortune magazine's list of the 100 Best Companies to Work For in America for the ninth consecutive year. • In March 2007, Fortune magazine named AFLAC to its list of America's Most Admired Companies for the seventh consecutive year. • In June 2007, Black Enterprise magazine named AFLAC to its list of the 40 Best Companies for Diversity for the third consecutive year. • In May 2005, Essence magazine ranked AFLAC as one of the top three companies from the Fortune 1000 where African-American women are finding success. This is the second time AFLAC has appeared on the list. • In February 2006, AFLAC was named to Hispanic magazine's list of the 100 companies providing the most opportunities to Hispanics. AFLAC has appeared on the annual list since 1993. • AFLAC is on Information Week’s eighteenth annual list of the 500 most innovative users of corporate technology (September 18, 2006). • In June 2006, AFLAC was named to Computerworld magazine's list of the 100 Best Places to Work in IT for the eighth consecutive year. • In October 2006, Working Mother magazine named AFLAC to its list of the 100 Best Companies for Working Mothers for the fifth time. • In May 2007, AFLAC was named one of the World’s Most Ethical Companies by Ethisphere magazine. • AFLAC was rated AA in insurer financial strength by Standard and Poor’s in April 2004, Aa2 (Excellent) in insurer financial strength by Moody’s Investors Service in January 2006, A+ (Superior) by A.M. Best in June 2006, and AA in insurer financial strength by Fitch, Inc in April 2005.

Corporate Governance

55-year-old Daniel P. Amos is the chairman and chief executive of AFLAC and AFLAC Incorporated. He has been with the company full-time since 1973. He was named president of AFLAC in 1983, chief operating officer in 1987, chief executive officer of AFLAC Incorporated in 1990, and chairman in 2001. He has been a member of the AFLAC Incorporated board since 1983. 59-year-old Kriss Cloninger III, is the president, chief financial officer and treasurer of AFLAC Incorporated. He joined AFLAC in 1992 as senior vice president and CFO after working with AFLAC as a consulting actuary since 1977. He was named president of AFLAC Incorporated and elected to its board in 2001. The table below shows some other key people of the company:
|Chairman and CEO |Daniel P. (Dan) Amos |
|President, CFO, and Director |Kriss Cloninger III |
|EVP and Chief Administrative Officer |Rebecca C. (Becky) Davis |
|SVP and Chief Marketing Officer |Jeffrey M. (Jeff) Herbert |
|SVP Community Relations |Angela S. Hart |

Market Segments

AFLAC’s operations in Japan (AFLAC Japan) and the United States (AFLAC U.S.) service the two markets for company’s insurance business. The table below shows the revenues and earnings before taxes that are obtained in these segments during 2004-2006:

Business Analysis
| | |Revenues |Earnings before taxes |

Report Date | | |12/31/2006 | |12/31/2005 | |12/31/2004 | | |12/31/2006 | |12/31/2005 | |12/31/2004 | | | | | | |Currency | | |US Dollar | |US Dollar | |US Dollar | | |US Dollar | |US Dollar | |US Dollar | | | | | | |Scale | | |Thousands | |Thousands | |Thousands | | |Thousands | |Thousands | |Thousands | | | | | | |AFLAC Japan | | |10,475,000 | |10,411,000 | |9,943,000 | | |1,652,000 | |1,515,000 | |1,404,000 | | | | | | |AFLAC U.S. | | |4,027,000 | |3,676,000 | |3,340,000 | | |585,000 | |525,000 | |502,000 | | | | | | |Other | | |42,000 | |39,000 | |33,000 | | |5,000 | |- | |- | | | | | | |Total | | |14,544,000 | |14,126,000 | |13,316,000 | | |2,242,000 | |2,040,000 | |1,906,000 | | | | | | |(exchange rate used is that of the Year End reported date)

As seen in the table, AFLAC achieved to increase its revenues and earning before taxes each year in both US and Japan segments. It is also seen that, 71% of the company’s revenue comes from Japan.

AFLAC in Japan

AFLAC is the number one life insurance company in Japan in terms of individual policies in force and the largest foreign insurer in Japan in terms of premium income. AFLAC also ranks first in the number of individual policies in force among all of Japan's life insurers and is the fifth most profitable foreign company in any industry in Japan. AFLAC entered the Japanese market in 1974. While visiting the World's Fair in Osaka in 1970, John Amos, founder of AFLAC, decided to market supplemental cancer coverage to the Japanese, whose national health care plan left them exposed to considerable expense from cancer treatment. After four years the company finally won approval to sell in Japan because the policies did not threaten existing markets and because Amos found notable backers in the insurance and medical industries. AFLAC became one of the first US insurance companies to enter the Japanese market, and it enjoyed an eight-year monopoly on the cancer market. Despite its U.S. roots, AFLAC makes most of its insurance sales in Japan (more than 70%), where its policies fill in gaps not covered by the national health insurance system. Therefore, the Japanese market has a strategic importance for the company.
Marketing Strategy AFLAC’s marketing strategy consists of expanding its sales force and product offerings in the corporate level; and providing products at low costs in the business level. • Corporate Level Strategy: Product Line Expansion
The core of AFLAC’s business is to design insurance policies that can be used to help with out-of-pocket expenses not covered by the existing primary insurance coverage of consumers. Therefore, AFLAC plans to continue expanding its product line that meets the needs of the market. The company also plans to grow by focusing on expanding its distribution system.

• Business Level Strategy: Low Cost Producer
While offering broad product line, AFLAC also focuses on remaining the low-cost producer in Japan’s insurance market. The company’s main procurement objective is providing products and services that meet or exceed quality specifications at the lowest cost. Their scale and operating efficiencies indicates that they are pretty successful in implementing low cost strategy, which results in market leadership in Japan. To protect its market leadership position in Japan, AFLAC plans to continue: • Enhancing its product line: AFLAC will research and develop innovative policies and update existing products to adapt to the evolving needs. • Promoting its brand position: AFLAC will emphasize its market leading status to attract consumers and distinguish its products in a more competitive market. • Enhancing its distribution system: AFLAC will recruit more sales agencies to reach additional consumers, while also providing them with better sales tools through new training programs. • Improving operational efficiency: AFLAC will invest new technologies and streamline its business processes to increase its core competitive advantage and provide convenience for policyholders and consumers.
Products and Services AFLAC Japan sells cancer plans, care plans, general medical expense plans, medical/sickness riders to its cancer plan, a living benefit life plan, ordinary life insurance plans and annuities. AFLAC's insurance products are designed to provide supplemental coverage for medical and non-medical costs that are not reimbursed under Japan's health insurance system. The cancer life insurance plans in Japan provide a fixed daily indemnity benefit for hospitalization and outpatient services related to cancer and a lump-sum benefit upon initial diagnosis of internal cancer. The plans differ from the AFLAC U.S. cancer plans in that the Japanese policies also provide death benefits and cash surrender values. The 21st Century Cancer Life provides customized AFLAC cancer life policy to suit the needs of workers. AFLAC’s Rider MAX product provides accident and medical/sickness benefits as a rider to the cancer life policy. The company’s ordinary life products provide death benefits and cash surrender values. AFLAC provides its ordinary products as either a stand-alone policy or as a rider. AFLAC’s annuity plan is an individual deferred premium annuity providing death benefits prior to annuitization age and annuity benefits during the payout period. AFLAC also provides a living benefit life plan and accident and care insurance. Offered as a stand-alone policy or as a rider, the living benefit life plan is a life insurance policy that provides lump-sum benefits when policyholders experience heart attack, cancer or stroke. AFLAC’s accident insurance policy provides benefits for inpatient and outpatient treatment and surgery due to accidents. AFLAC’s care insurance provides periodic benefits to those who become bedridden, demented, or seriously disabled due to illness or accident.
Distribution
In Japan, AFLAC primarily sells through an agency system in which a corporation forms a subsidiary to sell AFLAC insurance to its employees. AFLAC has more than 90,000 licensed sales associates, representing about 2,100 affiliated corporate agencies, and more than 16,200 individual or independent corporate agencies. The company also has a marketing alliance with Dai-ichi Mutual Life, Japan's second-largest life insurer.
Promotions
In 1990, the company’s name was changed to AFLAC, which was an acronym of its former name. As a name, AFLAC was odd sounding and awkward which made it hard for the company to build brand awareness. In 1999, AFLAC started working with the Kaplan Thaler Group, an advertising agency, to overcome this problem and Tom Amico and Eric David from Kaplan Thaler Group created the duck concept for the company. Commercials starring the famous AFLAC duck started airing on televisions in December of 1999. The company's identity has become more widely recognized, as the result of commercials featuring The AFLAC Duck, who frustratedly "quacks" the company's name to oblivious prospective policyholders. The creation of an effective, new, and recognizable brand identity for the company surrounding the duck is regarded as a significant modern branding case study. AFLAC boosted its name recognition in the US from 2% in 1990 to 90% in 2003, primarily through AFLAC Duck advertising campaign (Spaeth, 2005). By 2004, when the sale gains started slowing, CEO Amos decided to change the company’s logo. He thought that a logo change could provide a useful trigger event for this change in advertising strategy. Besides, the old logo was essentially undesigned, and it was not reflecting AFLAC quality. In 2005, the logo was changed to incorporate a duck character which is prominently featured in its advertising. In addition, the official spelling of the company name became "AFLAC" to help people accept it as a name rather than an acronym whose derivation is long forgotten. In July 6, 2007 AFLAC announced that it would partner with NASCAR through the 2010 season and become the sanctioning body's exclusive supplemental insurance sponsor. As part of the NASCAR deal, AFLAC will be able to use NASCAR properties, including its events and logos, to promote AFLAC products. AFLAC believes that this association will help the company to broaden its consumer base and strengthen relationships with existing customers. According to company research, many AFLAC customers are NASCAR fans as well (Hernandez, 2007).
Customer Profile AFLAC’s customer profile consists of the people at the worksite and at home.
At the home: Individuals who are seeking specific insurance coverage.
At the worksite: Employees at more than 39,300 payroll accounts, representing 90% of the companies listed on the Tokyo Stock Exchange, including workers at Hitachi, Fujitsu, Kirin Brewery, Canon, Ricoh, and Toyota, as well as employees at 164,000 small businesses.

Competitors
There is an intense competition in Japan’s insurance market. The top 3 competitors of AFLAC in Japan include: • Asahi Mutual Life: One of Japan's oldest and largest life insurance firms, Asahi Mutual Life Insurance sells primarily life and health policies to individuals and groups. Its specialized policies include ones that pay victims of cancer, stroke, and heart attack. Increased competition from industry deregulation, the plunging stock market, and cancellation of policies forced Asahi to cut about a third of its workforce at one point. In an effort to increase sales, the company started selling non-life insurance products through Millea Holdings, a partnership with Tokio Marine & Fire and Nichido Fire & Marine. A focus on third sector products, including health insurance, has helped stabilize the company's outlook • Daido Life: As part of the T&D group of companies, Daido Life Insurance is one of Japan's top providers of enterprise life insurance, focusing on the small and medium-sized corporate insurance market and offering combined life and non-life insurance. Adding new lines, including a pension management division and a securities investment division, Daido Life Insurance has reorganized its individual and group life insurance operations. After demutualizing, Daido Life joined up with Taiyo Life Insurance. Both are now subsidiaries of holding company T&D Holdings, which went public in 2004. • Unum Group: Is the largest disability insurer in the U.S. and the UK. The company offers individual and group short-term and long-term disability insurance and specialty coverage such as long-term care, cancer, and travel insurance. Subsidiaries include Colonial Life & Accident Insurance, Provident Life and Accident, First Unum Life, and The Paul Revere Life Insurance Company. Other operations include the GENEX Services unit, which provides disability management services, vocational rehabilitation, and related services to corporations, third-party administrators, and insurance companies.
Human Resources Management The number of AFLAC’s employees was 6,970 on December 31st of 2005. The company was named by Fortune magazine as one of "The 100 Best Companies to Work for in America” and one of "The 50 Best Companies for Minorities”. With promises to keep to its customers, AFLAC’s bottom-line success is highly dependant upon the productivity of the company’s workforce. Understanding that employee satisfaction is essential to productivity, it is imperative to AFLAC’s business that the company needs to continue to expand its role beyond the typical functions of personnel administration. AFLAC’s approach to human resource management includes positioning the division as a strategic partner that adds value to the business. Lending expertise and providing proactive input allows the HR division to bring something to the table thus earning the respect of executive management. In AFLAC, HR division’s role is to serve as a strategic business partner to executive management with an ability to forecast trends that will impact the bottom line. HR does more than fill requests for its business units. AFLAC’s strategy for managing the demands of a growing organization includes continually reviewing the needs of a workforce with changing demographics as well as proactively responding to issues that affect employee satisfaction in an effort to promote productivity, ultimately influencing the success of the business. This strategic approach has resulted in the implementation of major initiatives where HR-driven research and employee feedback were instrumental to project planning. Two of those initiatives include: • Employee-Plus-Child(ren) Coverage Helps Make Ends Meet With a significant number of single parents in the company’s workforce, AFLAC’s benefits were expanded to include the Employee-plus-Child(ren) coverage option to its health care plans. The insurance option features lower premiums to accommodate the budgets of one-parent households. • Pay and Perks Cut Employee Turnover and Boost Quality With extensive research over two years, HR worked with the call center department to develop a plan to ease staffing problems and reduce employee turnover among AFLAC customer service representatives.
Both initiatives showcased AFLAC HR’s ability to partner with business units to improve operational efficiencies while meeting the needs of its employees, empowering them with tools for improved productivity that has a direct impact on its business.
Suppliers
AFLAC pays great attention to the importance of a diverse supplier base to optimize the performance of corporate operations by obtaining the best value from product and service procurement activity. AFLAC’s commitment also recognizes the importance of supporting the quest for economic prosperity in its diverse communities. AFLAC has a long history of providing business opportunities for minority and women-owned companies. AFLAC intends to continue to develop processes and procedures that provide efficient and accountable supplier access to potential business opportunities. Developing mutually beneficial business relationships with minority and women-owned companies as primary suppliers is the company’s fundamental objective. AFLAC also encourages its primary suppliers to actively provide second-tier opportunities that support the company’s supplier diversity initiative.
SWOT Analysis
Strengths:
• Market Position: AFLAC is the leading supplemental insurer in Japan and is one of the largest sellers of supplemental insurance in the US. The strong market position provides a competitive advantage to the company. • Broad Product Line: AFLAC offers a broad line of products, which helps the company to meet different needs of the customers. • Low Cost Products: AFLAC has the ability to provide a broad line of products and services at the lowest cost. • Brand Recognition: The company has had strong brand recognition both in the U.S. and Japanese markets. While the brand awareness ratio was 2% in the early 1990s, with the help of successful AFLAC Duck commercials this ratio has increased to 90% in 2003! • Administrative Efficiency: AFLAC’s administrative efficiency led the company to offer a very competitive product value to consumers.
Weaknesses:
• Reliance on Japan: AFLAC is too much relied on Japan. Most of the revenue comes from this market, but the company is currently struggling in this market since the Japanese insurance market is becoming mature. AFLAC must find ways to be more profitable in U.S. markets. • Weak Demand in Japan: Total new sales of the company declined in 2006 due to weakness in the medical product category, including its EVER product line and Rider MAX. • Limited Business Segments: AFLAC’s business segments consist of only the U.S. and Japan. Since the company’s sales started decreasing in Japan, AFLAC should consider penetrating other international markets.
Opportunities:
• Growth Opportunity: Even though the Japanese and U.S. insurance markets are fundamentally different; they both share a common opportunity for growth. Both markets are well suited to the products AFLAC offers and each market has millions of potential customers who can benefit from AFLAC’s coverage. • Dissatisfied Japanese Consumers: According to research conducted by the Japan Institute of Life Insurance, more than 63% of Japanese consumers viewed the national health care system as inadequate in 2005. It means that there is still opportunity for AFLAC to satisfy these consumers.
Threats:
• Vulnerability to Currency Fluctuations: Its reliance on Japan has a downside. The company is vulnerable to currency fluctuations between the dollar and the yen. • Increased Competition: AFLAC also faces increased competition because of the deregulation of Japan's insurance industry. • Consumer Skepticism: Consumer confidence in Japan’s insurance industry deteriorated in 2006. Consumer skepticism was fueled by widespread media coverage of business suspensions and sanctions against non-life insurance companies for claims payment processing errors. It was one of the reasons that caused AFLAC to experience declined sales in 2006. If the Japanese consumer’s skepticism does not change soon, it should continue to affect AFLAC’s sales negatively in the future.

References

AFLAC.com, “Mission and Values”, http://www.AFLAC.com/us/en/aboutAFLAC/missionandvalues.aspx, July, 2007. Retrieved July 24, 2007.

Clark, Scott, “Don’t be the Ugly American in Business with Japan,” http://www.bizjournals.com/seattle/stories/2004/02/09/smallb3.html February 2004. Retrieved July 21, 2007.

Commercial Guide, “Leading Sectors for U.S. Export and Investment” http://www.buyusa.gov/japan/en/426.doc. Retrieved July 24, 2007.

Dean Foster and Associates, “Got a Yen for Business in Japan? Here’s How…”, http://www.learnaboutcultures.com/lac/cultural_snapshots/japan.html 2000. Retrieved July 20, 2007.

Economist.Com. “Economic Data,” http://www.economist.com/countries/Japan/profile.cfm?folder=Profile%2DEconomic%20Data (2007, July 03). Retrieved July 24, 2007.

Hernandez, Andrea V., “Knight Rider Tribune Business News”. Washington pg. 1. 2007. Retrieved July, 2007.

Spaeth, Tony, “Rebranded”, http://www.identityworks.com/articles/spaeth2003_4.pdf. Retrieved July, 2007.

Statistics Bureau, http://www.stat.go.jp/english/data/handbook/c02cont.htm, Retrieved July, 2007.

World Fact Book, “Japan”,https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html (2007, July 19). Retrieved July 22, 2007.

U.S. Library of Congress Country Study, “A Country Study: Japan,” http://lcweb2.loc.gov/frd/cs/jptoc.html (2005, November 08). Retrieved July 18, 2007.

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