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Okamoto condoms: objects of desire for Chinese tourists in Japan

A group of Chinese tourists stand with shopping bags at the Canal City Hakata commercial complex in Fukuoka, Japan, on Friday, July 24, 2015. Four million Chinese tourists are expected to head to Japan this year.
Kiyoshi Ota | Bloomberg | Getty Images
A group of Chinese tourists stand with shopping bags at the Canal City Hakata commercial complex in Fukuoka, Japan, on Friday, July 24, 2015. Four million Chinese tourists are expected to head to Japan this year.

Okamoto Industries' headquarters are in a disheveled grey building on a Tokyo backstreet. A poster from a long-forgotten public health campaign hangs in the front window. Display cases show-off a selection of shoes, a fake frozen fish and a roll of clingfilm. A bronze bust of the founder looms near an unstaffed reception desk.

In short, there is little to suggest Okamoto is the heart of a $1 billion company by market capitalisation with world-class materials technology, shares at a 22-year high, a transformational marketing push in the works, and a brand name synonymous throughout Asia with better sex.

But over the past eight weeks, and in defiance of the ructions on global markets, Okamoto has become one of the hottest names for investors.

Shares in the Tokyo-based company, Japan's market-dominant producer of condoms, have broken out of a trading band they occupied for more than a decade and risen by more than 120 per cent. Few companies have benefited so spectacularly, it acknowledges, from having 'Made in Japan' stamped on products.

"It was totally unexpected," says Yoshiyuki Okamoto, president of the company and son of the industrialist commemorated in bronze. "The best I can say is that we are looking at the situation calmly."

The Okamoto share price spike has been driven by China: specifically the 2.8 million Chinese that have visited Japan so far in 2015 and overtaken South Koreans and Taiwanese as the biggest contingent of inbound tourists. Chinese trust in domestic condom brands is low, and foreign brands, of which Okamoto is among the most famous, are faked on an immense scale. Buying the famous Okamoto 0.03 condoms (named for their thickness in millimetres) in Japan, say the Chinese shoppers who throng Tokyo's drug stores, guarantees they are getting the real thing.

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Chinese spending in Japan has been so lavish that a new term — bakugai or "buying explosion" — has emerged to describe the way Chinese tour groups des­cend on particular retailers and buy in bulk. Many, says Mr Okamoto, are basing their choices on widely circulated online lists of ideal items to buy in Japan, of which Okamoto condoms are at or near the top.

Until July, Okamoto's stock was lumped in with hundreds of other Japanese companies battling for sustainability in a shrinking domestic market. In the case of condoms, the headwinds seemed especially fierce. The Japanese population is the fastest ageing in the world and, according to some surveys, among the least sexually active.

Okamoto has spent decades making its name by challenging domestic and global rivals with ever thinner condoms. Now, however, it is contemplating whether a technological wall has been reached and whether the costs of seeking condom perfection at the molecular level are simply too high. Plans outlined by the president to follow the lead of Durex and attempt to "capture the senior market for sex" have yet to materialise as a practical strategy for Okamoto. For a decade, drug stores across Japan have been reducing the shelf-space devoted to condoms at a rate of 5 per cent every year.

Effecting any kind of turnround will be tough. Through its single-minded pursuit of technical improvement Okamoto has at various times held the world record for producing the world's thinnest condom. But social conservatism and strict television broadcasting rules in Japan mean it cannot be remote­ly suggestive about any benefits that thinness might confer on the user.

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"Marketing has always been very difficult here. The Japanese people are simply not used to sexy campaigns for condoms," says Mr Okamoto. "That is something we may be able to change as we start to use social media and it could be something that makes a big difference to this market. Online sales are another area that we expect to expand because people are not embarrassed buying over the internet."

Most see the sales effect of such campaigns as some way off; meanwhile, it seems as though Mr Okamoto almost cannot believe his luck in Chinese visitors putting his brand on their shopping lists.

Until now, China has brought him a string of headaches. As well as the huge, brand-damaging fakes market, Okamoto has been engaged for more than a decade in a legal dispute with a Chinese company that registered the Okamoto name in China before the Japanese company could do so: "It's just a continuous battle. A constant game of cat-and-mouse that has been going on for 10 years and we just cannot seem to win. Other companies in this situation eventually just gave up and agreed to buy the Chinese brand or make the company an affiliate. We have absolutely no plans to do that."

China has also produced a high-profile challenge to Okamoto's supremacy as a producer of condoms of "record-breaking thinness". Last year, it faced a legal challenge from Guang­zhou Daming United Rubber Products in a battle over the right to make that claim on packets of condoms sold in China.

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"The argument started over whose condom was thinner and they said they needed compensation from us. Do you know how much compensation they wanted? One yuan. It's such a primitive type of battle you can't even laugh about it. It was just a way of promoting their name. Eventually the matter was dropped," says Mr Okamoto.

On the strategic front too, China presents Mr Okamoto with challenges. Whatever his ambitions for a revival within Japan, it is clear that growth will come from Asia generally and China in particular. Some 15 years ago, Okamoto bought a Thai condom maker to use as a hub for regional sales. It has now completed a factory in China's Guangdong province that will start producing Okamoto branded condoms next year.

The intention, says Mr Okamoto, is to meet the rising demand from the Chinese market with a high quality product that is competitive on price because it is produced in China. The big, unknowable problem, he says, is whether the "Made in China" stamp on condoms leaving the factory will kill their appeal.

"I am quite worried about that," says Mr Okamoto. "But I'm also not sure how long this Chinese tourism spending boom is going to last."