Part 1
What They Are and What They Do
1
The Sogo Shoshaâs Core Business
Traders, Trading Intermediaries, and Developers
Japan's huge general trading companies have been characterized in Japan and abroad by all sorts of appellations, ranging from "Japanese-type conglomerates," "Japan's new zaihatsus," "Japanese-type multinationals," "modern monsters with worldwide communications networks rivaling that of the Pentagon," "mammoth traders handling 10,000 commodities from instant noodles to missiles," "speculators in stocks, rice, land, lumber and other necessities," to "action think tanks." These characterizations are only partial and misleading descriptions of the sogo shoshu's business, organizational structure, resources, and behavior. Outsiders and even many company insiders see thousands of puzzle pieces, but not the whole picture nor, more important, how the pieces fit together. In reality, the sogo shosha's basic business is amazingly simple. Once one grasps the core business, it becomes easy to understand their complex services, resources, strategies, operations, and organizational structure.
The general trading company's basic business has always been and still is trading. Specifically, this includes independent selling and buying as well as being a trade intermediary between sellers and buyersâin other words, serving as a channel connecting demand and supply. The sogo shosha are more than mere traders and trade intermediaries, however. They are also active creators of long-term demand and supply to ensure stability and to generate new business opportunities. They create demand and supply by organizing huge joint ventures, such as overseas development of industrial raw materials (e.g., iron ore, coal, bauxite), with giant producers. These ventures increase producers' demands for transportation, construction, and mining equipment, which the trading companies can then sell as principals or as agents. They also ensure the long-term supply of natural resources to various industries and thus open additional sales opportunities to the sogo shosha.
Enormous Power in Japanese and World Trade
Japan's big general trading companies are commercial giants possessing enormous power in Japanese and world trade. During the 1975 Japanese fiscal year (April 1,1975 to March 31, 1976) the ten largest general trading companies ("the big ten") had gross sales amounting to nearly $ 155 billion. They handled 56.4 percent of Japan's total exports, 55.6 percent of its import total (exports and import totals are both figured on a customs clearance basis), and approximately 18 percent of the domestic wholesale total. Their export and overseas (i.e., third-country trade) transactions accounted for slightly over 5 percent of world trade (export).1
A Highly Diversified Business
The big ten handle an almost infinite number of products. As one of their officials stated jokingly, "We buy and sell everything under the sun except people and coffins." Each trading company handles from 10,000 to 20,000 products. Furthermore, in addition to selling and buying, they engage in numerous other types of business.
Consider, for example, the extensive business ventures of the Mitsubishi Corporation as listed by its semiannual financial report for the fiscal half year ended March 31, 1974:
- Purchase, sales, export, and import of the following:
- coal, petroleum, gas, other fuels and manufactured products of above;
- iron, nonferrous metals, manufactured products of above, ores and minerals; machinery, equipment (including gauge and medical equipment), locomotives, ships, airplanes, and parts of above;
- food, liquor and other beverages, fat, resin, tobacco, salt, and other agricultural, marine, forestry, livestock and natural products and finished products of above;
- fertilizer, feed, and raw materials of above;
- textile products and raw materials;
- lumber, wood products, cement, glass and other kiln products;
- chemical products, cosmetics and pharmaceuticals (drugs, poison and explosives, etc.); and
- rubber, leather, pulp, paper, manufactured products of above, and sundry goods.
- The development, prospecting, production, manufacturing, processing, growing, and subcontracting of each of the items above.
- Repair and installation, subcontracting, leasing and management of machinery, equipment, locomotives, ships, airplanes, and parts.
- Construction business.
- Purchase, sales, leasing, and management of real estate.
- Purchase and sales of antiques.
- Warehousing.
- Land transportation, maritime transportation, and air transportation.
- Agency, brokerage, and wholesale of each of the items above.
- Agency for liability insurance and for automobile insurance based on the automobile liability insurance law.
- All and every business related to each of the items above.2
The financial reports of the other nine general trading companies show that each of them engages in similarly diversified business ventures, except for C. Itoh & Co., Ltd., which omits manufacturing as a line of business. Indeed, additional ventures were listed by other firms: travel agencies by Toyomenka Kaisha, Ltd., and Ataka & Co., Ltd.; analysis and dissemination of information by Kanematsu Gosho Ltd.; purchase and sale of precious metals by Nissho-Iwai Co., Ltd.; and acquisition of securities and extension of credits and funds (i.e., loans) by Nichimen Company, Limited. Actually all the sogo shosha, even those not listing them, engage in these additional activities although they may suspend some ventures from time to time.
A systematic examination shows that the big ten have been primarily large-volume, first-stage wholesale traders of industrial raw materials and grains and of such standardized intermediate products as steel, synthetic fiber, and fertilizer. Price, speed of information, and economies of scale are of primary importance in these kinds of sales, which require little engineering service to manufacturers, minimum sales promotion, and minimal repair and other after-service to retail consumers. The big ten are not large traders of machineries or consumer products (e.g., automobiles, electronic equipment, cameras, etc.) characterized by multiplicity of products, product differentiation, sales promotion, and various technical customer services.
During FY 1975 ended March 31, 1976, the ten largest general trading companies had an overwhelming weight (81.8 percent) in Japan's metal exports, more than a majority share in the country's chemicals and textiles export (64.7 percent and 60.8 percent, respectively), but less than a majority share (42.7 percent) of machineries and an insignificant share (35 percent) in the export of all other commodities groups. The import business of the big ten shows a similar pattern. They dominated three groups of Japanese imports: foodstuffs (81.3 percent), chemicals (78.2 percent), and textiles (73.5 percent). They also had a majority share in Japan's import of metal raw materials and fuel. Their weight in machineries and "others" was insignificant. Figure 1.1 provides specific figures.
Global Spread of Business
The sogo shosha buy and sell as principals or agents not only at home but all over the world. They trade with all geographic regions: North America; Central and South America; East, Southeast, and Western Asia; Oceania; Near and Middle East; Africa; and Eastern and Western Europe. They have extensive business dealings with both the industrialized democracies and the Communist bloc countries. At any moment, several thousand well-dressed sogo shosha men from the Japanese headquarters are
Figure 1.1 Share of the ten general trading companies' commodities trade in Japan's foreign trade, FY 1975
Note: Unit = %.
Source: Information and Research Department, Mitsui & Co,, Nihon keizai ni okeru shosha no yakuvari: genjo to tenbo (Tokyo: Mitsui & Co., 1976), p. 7.
abroad working in their Park Avenue offices in New York, flying to Buenos Aires with attaché cases in hand, huddling with customers at Taipei's Grand Hotel, eating at restaurants along Toronto's Yonge Street, or drinking at bars in Mexico City. Drinking, dining, or laughing, they are always ready to make a deal. Each spring and autumn hundreds of them travel to the Canton trade fairs to sell to and to buy from the Chinese. Top officials, such as Honorary Chairman Hisashi Tsuda of Sumitomo Sh...