Pachinko - Japan's Biggest Small Business Industry

"Pachinko is a popular past-time in Japan, especially with men. It's basically a vertical pinball-style machine, with the object being to shoot metal balls at just the right angle needed to make them go into certain holes inside the machine, which makes more balls come out, so that you end up with more balls than you started out with.

Although gambling is illegal, you can exchange the balls for "prizes" which you turn into "sell" back to the pachinko parlor." From JList.

Up to now the pachinko parlors have been run as small businesses, but it looks like that may change. One investor, Akira Fujii of KCS Ltd., is planning to help the pachinko parlor operators improve their operations so that they can bring in investors -- something that undoubtedly will lead to larger players in the industry. That's according to Terrie's Take Issue 312, the newsletter of Japan Inc. publisher Terrie Lloyd:

"Pachinko (Japanese pinball) is Japan's biggest business sector, a JPY3trn [US $28 Billion] business that almost no one talks about.

There are 17,000 pachinko establishments in Japan, many of which are operated by people with less-than-savory business backgrounds. Pachinko parlors are unregulated and cause numerous headaches for their approximately 2,000 industry suppliers - meaning that the trust factor and interest in investment are very low.

The pachinko industry has a pyramidal organization. At the top are the pachinko machine manufacturers, who effectively own the patent rights to the machines. Next are the equipment and service wholesalers, the meat in the sandwich, who wind up financing the pachinko operators and placating the manufacturers. At the bottom are the pachinko operators. They generate lots of cash but are generally poor at managing money.

Fujii [investor] plans to help normalize the industry and thus make it more attractive to investors. First, he is implementing ISO 9001 and ISO 14001 programs, which allow operators to declare that they are running their establishments as proper businesses. He introduced the first ISO trial in the middle of 2003, and already has companies signed up and preparing for their ISO inspections."

Another article points out pachinko's connection to the Japanese yakuza underworld. Even though pachinko has attractive cash flow, the yakuza connection is the only thing that has kept pachinko from being snapped up by big business.

If you've never been to Japan or played pachinko, Mitch Slater at Visinno has just the thing: a link to an online pachinko game.