Japanese Trading Companies
Japanese Trading Companies
ETCs are essentially new, untested trading companies. When one thinks of trading companies, the giants such as Mitsui, Marubeni, and Mitsubishi of Japan come to mind. The sogo shosha, the Japanese equivalent word for trading company, can trace their roots back to the late 1800s, when Japan embarked on an aggressive modernization process. At that time, the trading companies were referred to as zaibatsu, large, family-owned businesses that were comprised of a series of financial and manufacturing companies usually held together by a large holding company. These zaibatsu were very powerful, so General Douglas MacArthur broke them up after World War II and made many of their activities illegal.
The sogo shosha initially took the primary role of acquiring raw materials for the industrialization process and then finding external markets for goods. Although there are more than 6000 trading companies in Japan, the sixteen major sogo shosha control more than a majority of Japan's exports and imports. In addition, their annual sales are slightly greater than one third of Japan's GNP, a tremendous economic concentration.32 Table 14.1 illustrates
TABLE 14.1 | FIFTEEN LARGEST WORLD CORPORATIONS IN SALES Six of the top ten firms in the world as measured in sales are Japanese trading companies.
Sates (in Billions of U.S. dollars)
1. Mitsui $128.0
2. Marubeni 123.2
3. Mitsubishi 121.5
4. General Motors 110.0
5. C. Itoh 104.7
6. Sumitomo 97.3
7. Exxon* 95.2
8. Royal Dutch/Shell* 85.4
9. Ford 82.9
10. Nissho Iwai 75.1
11. IBM 62.7
12. Mobil* 56.2
13. General Electric 54.6
14. Sears Roebuck 53.8
15. Toyota Motor 52.6
*Includes excise taxes +Excludes excise taxes
Source: "The Wall Fell Down, and the Continent Took Off," Business Week, July 16, 1990, p. 111.
the sheer size of the sogo shosha relative to other large firms in the world. Of
Japanese trading compa- the fifteen largest companies in the world in terms of sales, six of the top ten nes are the largest in the are Japanese trading companies. They generate tremendous sales volumes,
world in terms of sales. . . , „
even though they are not very profitable and their global ranking in terms of
market value is not significant. For example, of the top 100 firms in the world
in terms of market value, only one Japanese trading firm is listed—Mitsubishi
Corp. at number 76. It may be smaller than Mitsui in terms of sales, but it is
larger in terms of market value. Even in Japan, only four trading firms are in
the top 100 in terms of market value, even though those four are larger in
terms of sales volume than any other Japanese corporation.33
When the sogo shosha were first organized after WWII, their primary functions were handling paperwork for import and export transactions, financing imports and exports, and providing transportation and storage services. However, their operations expanded significantly to include investing in production and processing facilities, establishing fully integrated sales systems for certain products, expanding marketing activities, and developing large bases for the integrated processing of raw materials.34
Most of the sogo shosha are also part of a larger corporate relationship,
called a keiretsu. Several of the sogo shosha are involved in bank-centered keiretsu, such as Mitsubishi, Mitsui, and Sumitomo. Others are industrial-group keiretsu. The keiretsu relationships imply that one company agrees to become a shareholder in another in order to build a long-term and very close business relationship. The Mitsubishi group involves over 150 companies with a total market capitalization of 11 percent of the Tokyo Stock Exchange. The cross-shareholding in the Mitsubishi Group equaled 26.9 percent of all shares in 1988. Mitsubishi Corporation, the trading arm of the Mitsubishi Group, has the advantage of working with very powerful financial and industrial partners. For example, Mitsubishi Estate purchased 57.6 percent of Rockefeller Center, Mitsubishi Corporation bought control of Aristech Chemical and later sold pieces to four of its fellow group members, Mitsubishi Trust & Banking was the main lender in the purchase of the Pebble Beach golf course, and four Mitsubishi companies have been discussing global joint ventures with Daimler-Benz.35
An example of how a sogo shosha can help a client involves Marubeni and Bridgestone Tire. Marubeni is the second-largest trading company in Japan in terms of sales revenues (and also second-largest in the world in sales revenues). For years, Marubeni supplied Bridgestone with carbon black used in the manufacture of tires. The business had been modest, but Bridgestone was a valued client. One day, Yasushi Kawahara, the manager in charge of the Bridgestone account, received a request for help in building a unique test track for Bridgestone tires that would mirror Belgian road conditions.
Bridgestone could not solve the problem because it lacked staff in Belgium, but Marubeni did have the needed resources. Kawahara contacted one of his staff in Brussels, who hunted around until he found cobblestones that met the proper specifications. The shipment was prepared to meet export requirements in Belgium and import requirements in Japan, areas in which Marubeni had expertise. Finally, 100,000 stones were shipped to Japan and used to build the test track.
Because Bridgestone was an old and valued client, Kawahara did not price the transaction to earn a significant profit. However, he was able to develop a thriving and profitable cobblestone business for other Japanese auto and tire companies trying to emulate Bridgestone's project.36
The sogo shosha faced a variety of challenges in the decade of the 1980s, many of which have been brought on by changes in the domestic Japanese economy as well as the international economy. Their role in trade financing, for example, is being disputed by the banks, which have become more internationally oriented than they used to be. Many of the marketing functions are being questioned by the manufacturers themselves. The transition appears as follows:
1. The larger and more significant the market, the sooner the manufacturer turns away from the sogo shosha (e.g., C. Itoh still handles auto marketing for Toyota in Saudi Arabia, a small market).
2. The more complex the technology involved, the sooner the manufacturer
turns away from the sogo shosha (because of the difficulty of the sogo shosha dealing with the technical requirements of the product).
3. The more specific and involved the marketing and service requirements are, the sooner the manufacturer turns away from the sogo shosha.37
Finally, the sogo shosha are beginning to get more involved in foreign investment. The Japanese have historically preferred to sell abroad through exports rather than through direct investment, as has been the strategy of U.S. companies. However, the nature of the international marketplace is causing the trading firms to consider more direct investment because many of the client firms have their own manufacturing niches and have decided to expand these operations abroad.38 This not only illustrates a change in locational strategy but also shows how the trading companies have diversified their revenue base. As mentioned earlier, Mitsubishi Estate purchased a controlling interest in the Rockefeller Center, and Mitsubishi Corporation purchased a controlling interest in Aristech Chemical in the United States. Four Mitsubishi companies have begun discussions with Daimler-Benz to develop a number of strategic alliances in Europe.
ETCs are essentially new, untested trading companies. When one thinks of trading companies, the giants such as Mitsui, Marubeni, and Mitsubishi of Japan come to mind. The sogo shosha, the Japanese equivalent word for trading company, can trace their roots back to the late 1800s, when Japan embarked on an aggressive modernization process. At that time, the trading companies were referred to as zaibatsu, large, family-owned businesses that were comprised of a series of financial and manufacturing companies usually held together by a large holding company. These zaibatsu were very powerful, so General Douglas MacArthur broke them up after World War II and made many of their activities illegal.
The sogo shosha initially took the primary role of acquiring raw materials for the industrialization process and then finding external markets for goods. Although there are more than 6000 trading companies in Japan, the sixteen major sogo shosha control more than a majority of Japan's exports and imports. In addition, their annual sales are slightly greater than one third of Japan's GNP, a tremendous economic concentration.32 Table 14.1 illustrates
TABLE 14.1 | FIFTEEN LARGEST WORLD CORPORATIONS IN SALES Six of the top ten firms in the world as measured in sales are Japanese trading companies.
Sates (in Billions of U.S. dollars)
1. Mitsui $128.0
2. Marubeni 123.2
3. Mitsubishi 121.5
4. General Motors 110.0
5. C. Itoh 104.7
6. Sumitomo 97.3
7. Exxon* 95.2
8. Royal Dutch/Shell* 85.4
9. Ford 82.9
10. Nissho Iwai 75.1
11. IBM 62.7
12. Mobil* 56.2
13. General Electric 54.6
14. Sears Roebuck 53.8
15. Toyota Motor 52.6
*Includes excise taxes +Excludes excise taxes
Source: "The Wall Fell Down, and the Continent Took Off," Business Week, July 16, 1990, p. 111.
the sheer size of the sogo shosha relative to other large firms in the world. Of
Japanese trading compa- the fifteen largest companies in the world in terms of sales, six of the top ten nes are the largest in the are Japanese trading companies. They generate tremendous sales volumes,
world in terms of sales. . . , „
even though they are not very profitable and their global ranking in terms of
market value is not significant. For example, of the top 100 firms in the world
in terms of market value, only one Japanese trading firm is listed—Mitsubishi
Corp. at number 76. It may be smaller than Mitsui in terms of sales, but it is
larger in terms of market value. Even in Japan, only four trading firms are in
the top 100 in terms of market value, even though those four are larger in
terms of sales volume than any other Japanese corporation.33
When the sogo shosha were first organized after WWII, their primary functions were handling paperwork for import and export transactions, financing imports and exports, and providing transportation and storage services. However, their operations expanded significantly to include investing in production and processing facilities, establishing fully integrated sales systems for certain products, expanding marketing activities, and developing large bases for the integrated processing of raw materials.34
Most of the sogo shosha are also part of a larger corporate relationship,
called a keiretsu. Several of the sogo shosha are involved in bank-centered keiretsu, such as Mitsubishi, Mitsui, and Sumitomo. Others are industrial-group keiretsu. The keiretsu relationships imply that one company agrees to become a shareholder in another in order to build a long-term and very close business relationship. The Mitsubishi group involves over 150 companies with a total market capitalization of 11 percent of the Tokyo Stock Exchange. The cross-shareholding in the Mitsubishi Group equaled 26.9 percent of all shares in 1988. Mitsubishi Corporation, the trading arm of the Mitsubishi Group, has the advantage of working with very powerful financial and industrial partners. For example, Mitsubishi Estate purchased 57.6 percent of Rockefeller Center, Mitsubishi Corporation bought control of Aristech Chemical and later sold pieces to four of its fellow group members, Mitsubishi Trust & Banking was the main lender in the purchase of the Pebble Beach golf course, and four Mitsubishi companies have been discussing global joint ventures with Daimler-Benz.35
An example of how a sogo shosha can help a client involves Marubeni and Bridgestone Tire. Marubeni is the second-largest trading company in Japan in terms of sales revenues (and also second-largest in the world in sales revenues). For years, Marubeni supplied Bridgestone with carbon black used in the manufacture of tires. The business had been modest, but Bridgestone was a valued client. One day, Yasushi Kawahara, the manager in charge of the Bridgestone account, received a request for help in building a unique test track for Bridgestone tires that would mirror Belgian road conditions.
Bridgestone could not solve the problem because it lacked staff in Belgium, but Marubeni did have the needed resources. Kawahara contacted one of his staff in Brussels, who hunted around until he found cobblestones that met the proper specifications. The shipment was prepared to meet export requirements in Belgium and import requirements in Japan, areas in which Marubeni had expertise. Finally, 100,000 stones were shipped to Japan and used to build the test track.
Because Bridgestone was an old and valued client, Kawahara did not price the transaction to earn a significant profit. However, he was able to develop a thriving and profitable cobblestone business for other Japanese auto and tire companies trying to emulate Bridgestone's project.36
The sogo shosha faced a variety of challenges in the decade of the 1980s, many of which have been brought on by changes in the domestic Japanese economy as well as the international economy. Their role in trade financing, for example, is being disputed by the banks, which have become more internationally oriented than they used to be. Many of the marketing functions are being questioned by the manufacturers themselves. The transition appears as follows:
1. The larger and more significant the market, the sooner the manufacturer turns away from the sogo shosha (e.g., C. Itoh still handles auto marketing for Toyota in Saudi Arabia, a small market).
2. The more complex the technology involved, the sooner the manufacturer
turns away from the sogo shosha (because of the difficulty of the sogo shosha dealing with the technical requirements of the product).
3. The more specific and involved the marketing and service requirements are, the sooner the manufacturer turns away from the sogo shosha.37
Finally, the sogo shosha are beginning to get more involved in foreign investment. The Japanese have historically preferred to sell abroad through exports rather than through direct investment, as has been the strategy of U.S. companies. However, the nature of the international marketplace is causing the trading firms to consider more direct investment because many of the client firms have their own manufacturing niches and have decided to expand these operations abroad.38 This not only illustrates a change in locational strategy but also shows how the trading companies have diversified their revenue base. As mentioned earlier, Mitsubishi Estate purchased a controlling interest in the Rockefeller Center, and Mitsubishi Corporation purchased a controlling interest in Aristech Chemical in the United States. Four Mitsubishi companies have begun discussions with Daimler-Benz to develop a number of strategic alliances in Europe.
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