international
Trading firms: backbone of Japan's commerce More than 80% of chemical and textile exports, fully 90% of steel exports from Japan are sold through trading companies When two or more gather together to discuss Japan, Inc., and its ways, the talk often centers on the interwoven connections between Japanese industry and government—and perhaps the banks. There's another thread in the fabric that deserves a closer look. Japan's general trading firms, with their distribution systems, information networks, and financing power, are virtually the backing that holds the commercial carpet together. They also are reaching beyond trading, to coordinate resources development abroad and new industries at home on a scale unprecedented for Japan. Reflecting its enlarged view of its function, the largest trading firm of all this month changed its name for overseas use from Mitsubishi Shoji Kaisha (Mitsubishi Trading Co.) to Mitsubishi Corp. Buying and selling, however, remain the core of the trading comMitsui's busy new fine chemicals section
panies' work. Mitsubishi Corp. writes more than 5000 contracts on an average business day, involving goods and services worth about $35 million. Trading firms sit squarely in the middle of Japan's foreign trade flow—the top 10 handle roughly half of the country's exports and some two thirds of its import trade. The chemical and textile industries both depend on traders to market well over 80% of their exports, and fully 90% of Japan's steel exports are sold through traders. At home, about 6000 trading firms of all sizes keep production lines supplied with materials and counters stocked with merchandise. Chemical producers are no exception to the pattern. Except for over-the-fence sales within a petrochemical complex, chemicals and plastics typically go to domestic users through trading firms rather than by direct sale. Credit. Distribution alone doesn't keep Mitsubishi Corp., Mitsui & Co., and their fellow traders at the center of Japan's industrial marketing. Finance is equally important. The usual credit terms of a representative Japanese chemical producer are now 90 to 120 days. Reselling the product, a trading firm may extend credit of up to 180 days to a user whose cash position is weak or who has special relations with the trader (such as a distribution agreement for the user's own products). It's also common for a trading firm to help finance suppliers' inventories through advance payment for goods. The larger trading firms can offer long-term financing of up to 15 years for deferredpayment equipment exports. Other financial ties can include loans and direct investment to assist the expansion of a customer or supplier, or in some cases to prevent its collapse. Mitsubishi Bank estimates that credit extended by Japan's top 10 trading companies reached $11.5 billion in 1969—about a tenth of the nation's total trade credit outstanding at that time. Mitsubishi Corp. alone carries at present about $2 billion worth of accounts, notes, and loans receivable (including long-term items). Each of the large trading firms, in turn, maintains close ties with sev-
eral major Japanese banks and is among their top borrowers. The banks refinance about half of the trade credit extended by the top 10 traders, whose guarantees outrank the credit ratings of many industrial firms in the banks' eyes. Refinancing of overseas operations is also available. As of last year, for instance, Mitsubishi Corp. had obtained from commercial and government-affiliated banks in Japan about 80% of the value of its loans to ventures abroad and its investments in them. Thus the trading firms help spread the financial burden in two directions—by sharing both the trade credit load of suppliers and the lending risk of the banks. Chemicals. Mitsui & Co. last year sold almost $1.2 billion worth of chemicals, including plastics and fertilizers, accounting for 12% of its sales. Mitsubishi Corp.'s chemicals sales were $862 million. Between them, the two leading traders thus handled some 15% of Japan's estimated $13 billion chemical shipments last year. It wasn't always thus with the trading firms. Until the coming of petrochemical production to Japan in the 1950's, chemical products were distributed mainly through a network of dealers specializing in a few chemical lines. But the building of naphtha-cracking complexes changed the scale of chemical production and raised the stakes demanded of the players—including distributors. Through their contacts overseas, general trading firms were also instrumental in introducing the foreign process technology on which Japan's petrochemical industry is based. Gradually, the traders' chemical departments became proficient at spotting surpluses and shortages in the new complexes' product balances and in balancing supply and demand among these chemical centers. Chemical barging and bulk storage facilities accordingly were added to their trading services. And the producers? "Chemical producers in general don't care about the market," maintains Kazuo Kume, assistant manager of Mitsubishi Corp.'s chemicals department A. "Their main concern is choosing and operating processes." Preoccupation with pro-
Historically Japanese trading firms have handled almost everything More than two centuries before John Cash Penney had the same idea, Hachirobei Mitsui opened a dry goods shop in Kyoto where the signs read "Cash only—fixed prices." No bargaining. Low overhead. Its success was the beginning of one of Japan's largest commercial industrial combines. Shortly after Japan was reopened to foreigners in the 1850's, and the Mitsui family established Mitsui & Co. to handle foreign trade. Later, when the government began to set up heavy industries by fiat, prospering merchant families like Mitsui, Sumitomo, and Iwasaki (who controlled the Mitsubishi business group) put up much of the cash. Once well established, these first steel mills, mines, and factories were turned over to the major commercial houses, all of which sooner or later spun off their marketing departments to form trading companies. This evolution set the pattern of close marketing and financing relations between production companies and trading firms that has persisted in Japan. There are more than 6000 Japanese trading firms, most of them specializing in a few product lines or operating as local or regional marketers. But the largest—often called general trading firms—deal in almost every commodity made or used in Japan. The top 10 firms (based on sales) handle roughly half of the country's exports and almost two thirds of its imports. These same 10 firms, the Mitsubishi Bank estimates, were also handling about 18% of Japan's total domestic wholesale trade by 1968—a $33 billion slice in that year. They maintain their position by combining large-scale distribution with financing services and a worldwide commercial information system. Links with makers and users are reinforced in some cases by a general trader's financial guarantees, loans, and direct investment. Largest. Sales of Mitsubishi Corp., Japan's largest trading firm, totaled $10.8 billion in its fiscal year ending last September. (Sears, Roebuck & Co., the largest merchandiser in the U.S., had sales of $9.3 billion in 1970.) Mitsubishi Corp.'s trading profile is representative of most of the general trading firms. Producer goods form the bulk of its sales. About 70% of its business last year was in ores, metals, machinery (including ships), and chemicals. Its business was fairly
evenly divided between domestic trade and export/import sales. Although sales are high, margins are low. The firm's gross trading profit last year was $267 million, not quite 2.5% of sales. Another $365 million was earned from such sources as warehousing fees, insurance commissions, and interest on loans. Net income came out to $40 million. About a third of Mitsubishi Corp.'s equity is held by others among the 40-odd companies in the Mitsubishi combine, led by two large insurance firms and Mitsubishi Bank. The trading firm in turn owns about 4.4% interest in Mitsubishi Petrochemical Co., 1.3% interest in Mitsubishi Bank, and similar small equities in more than half of the combine's companies. Banks and insurance firms are the leading stockholders in most of the top 10 trading firms, though Sumitomo Chemical and Sumitomo Metal Industries, respectively, hold second and third place among Sumitomo Shoji Kaisha's owners, and Toyo Menka's main shareholders include Kanegafuchi Spinning Co., a diversified cotton spinner and synthetic fiber maker. Another part of the marketing network is the medium-size, more specialized trading firm. One such firm is Nagase & Co., whose sales last year were $369 million. About 65% of its business is in chemicals, plastics, and dyes. It's also general agent in Japan for Eastman Kodak's cameras and photo supplies. Another example is Toyota Motor Sales Co., which distributes its parent
firm's vehicles both abroad and at home. Certain of Japan's best-known products, in fact—among them automobiles and electronic gear—are exported to major markets directly by the maker or its own trading subsidiary. Examples include the Sony, and Panasonic electronic equipment lines as well as Datsun and Nissan automobiles. Significantly, both electronics and auto production are industries whose main development in Japan occurred after World War II and largely outside of the older combines. Fusion. The general trading firms have begun to fuse a bit at the edges with their clients, through investments in the latter and joint ventures with them, as well as some wholly owned processing operations to complement their customers' business. Mitsui & Co., for instance, is minority partner in more than 100 joint enterprises ranging from food raising such as corn and chickens to light manufacturing and ore mining. The largest traders are moving toward the role of coordinator among their closest industrial clients in largescale projects such as mass housing and ocean development. How well they function as promoters remains to be seen. "A big trading firm is like a hundred little companies combined," says a senior planning manager of one large chemical company. "Their goal of coordinating industry is a good one, but they still have some way to go." Given the trading firms' proficiency in coordinating Japan's trade, though, it seems only a matter of time.
JULY 26, 1971 C&EN
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duction, he thinks, stems from Japan's postwar revival and especially from its petrochemical adolescence. Demand far outstripped capacity in those years, and the market for most products was ready-made. "Chemicals," he says, "appeared to sell themselves, and the maker's job was just to make them." Though Mr. Kume's position won't find much agreement within the chemical companies, it's true that a substantial part of their output goes to market through traders. Sumitomo Chemical Co., Japan's largest chemicals firm, sells only about 30% of its output directly, and these sales are mainly to its own subsidiaries and affiliates. Mitsubishi Petrochemical Co., a leading maker of low-density polyethylene, sells about 20 to 30% of that product directly, routing the rest through eight trading firms. Another company, whose sole customer for a fiber intermediate is one of Japan's biggest fiber makers, nevertheless supplies that customer through a general trading firm. Marketing. In fact, Japanese chemical distribution is a spiderweb of relations among maker, user, and often one or more trading firms. Market scatter is a prime consideration, but which way the invoices go from maker to user can be influenced by factors as diverse as maker's source of raw materials and trader's help to user in lean times past. Mitsubishi Chemical Industries, whose products include acrylonitrile, caprolactam, and both dimethyl terephthalate and fibergrade terephthalic acid, sells some 90% of its output of these intermedi-
ates directly to fiber makers. Two thirds of its phthalic anhydride and 2-ethylhexanol output is also sold directly, going to Japan's two largest plasticizer makers. Its aluminum output (the company is one of Japan's five primary producers), on the other hand, is marketed solely by Mitsubishi Corp.—including the share that goes to Mitsubishi Aluminum, a joint fabricating venture of Mitsubishi Chemical itself, other Mitsubishi group firms, and Reynolds Metals Co. Mitsubishi Corp. imported the technology that launched Mitsubishi Chemical into light metals, and it continues to supply alumina through longterm contracts abroad. Plastics are sold mainly to general trading firms, and solvents are routed to smaller traders that specialize in chemicals. Trading companies likewise split their sales, supplying large-scale users directly and depending on smaller, more specialized dealers to distribute to fragmented markets or to users having special relations with a certain dealer. But percentages of sales handled by traders can be misleading. Take plastics. Although the majority of Japanese fabricators are small, a few big firms offer high-volume, long-term demand for bulk plastics. Fabricator and producer frequently will settle the terms of supply (specifications, quantities, and delivered price) directly. Yet the deal may well be closed through a trading firm, which the producer will regularly bill and which will duly bill the fabricator. The plastic is shipped direct by maker to fabricator, and the maker furnishes
any required technical service. The trading firm is involved largely to guarantee the financing in return for a commission. There are many variations. In some cases the trader buys f.o.b. and adds its markup to the user's price. The trader may handle transportation and intermediate storage. Neither trader nor fabricator signs a long-term contract with the maker in the usual case, though the supply arrangement may be a continuing one. The maker furnishes an "agreement sheet" at the start, stating selling terms and delivery conditions, but not length of agreement or cumulative quantities to be purchased. "We have a verbal understanding, though, in terms of one or two years," says Toshio lijima, general manager of Mitsui & Co.'s second organic chemicals department. Such arrangements can work smoothly in Japan, where personal understandings traditionally carry more weight than do agreements spelled out in writing. "They're almost one company," says Mr. lijima in describing how trading firm and maker cooperate to manage such long-term arrangements. In most of its buying and selling, a general trading firm acts as agent rather than as principal—purchases and sales are made to fill existing commitments to customers or suppliers. This is essentially a no-risk operation, and margins are small. Typical commission for handling a bulk chemical product, says Mitsubishi Corp.'s Mr. Kume, is 2% of sales in Japan, upwards of 3% in the export trade. (Purchases and sales on its
Trading firms are at the hub of Japan's chemicals distribution system Japanese chemical marketing is a web of distribution and financing arrangements centering on the ubiquitous trading firms, which act in varying degrees as the purchasing, marketing, credit, and international arms of Japanese industry. The nation's largest chemicals producer (Sumitomo Chemical) markets only 30% of its output directly.
lUJ-IJ-UJIJIl-bH Chemicals producer General trading firm Medium-scale user
Specialized trading firm Chemical dealers
Small-scale user
20 C&EN JULY 26, 1971
A prime asset of Japan's general trading firms is their stock of current, detailed market data from world markets. Mitsubishi Corp. maintains contact with its overseas office network through the cable room (left) in Tokyo headquarters, which handles some 10,000 cables in an average working day. Mitsui & Co., whose 119 offices abroad give it the most extensive overseas network of any trading firm, operates in Tokyo two sets of Farrington optical character reader-computers for highspeed conversion of typed and printed information into Teletype tapes, computer tapes, or punched card form.
own account were only 8% of Mitsubishi Corp.'s total trading volume in the half year ending in March 1970.) A new pattern, though, may be emerging in chemical export trade. In December, Mitsubishi Corp. will begin a seven-year agreement to buy 1." 0,000 metric tons a year of cumene from Mitsubishi Petrochemical Co. It will in turn ship the cumene to Dow Chemical as feedstock for the latter's phenol and acetone production in the U.S. Mitsubishi Corp. will buy 50,000 tons a year of phenol (demand exceeds capacity in Japan) and 30,000 tons of acetone from Dow for resale on its own account. Mitsui & Co. exports butadiene to the Gulf Coast—about 40,000 metric tons a year, shipped in LPG tankers. It generally manages to return these tankers laden with vinyl chloride for customers in Japan or elsewhere in Asia. Mitsui & Co. also handles almost 90% of the caprolactam supply to the nylon plants of Southeast Asia, in many of which Mitsui & Co. holds equity interest, along with Japanese fiber makers. Most of this caprolactam is purchased from Allied Chemical and Badische Anilin-& SodaFabrik, since caprolactam is in short supply in Japan itself. A large trading firm's marketing network abroad enables it to spot new chemical markets and couple them with alacrity to lowest-cost supply source. Coordination of offshore transactions, in fact, is on the rise among major trading firms. Mitsubishi Corp.'s $652 million trade outside Japan last year was u p 42% from 1969, a faster gain than for either its export/import or its domestic business. Chemicals and textiles together accounted for $87 million of the company's offshore trade. Graduates. Technical graduates are not in the majority in Japan's chemical marketing—either in trading firms or in the chemical companies.
University graduates form the bulk of a general trading firm's male staff— upwards of 80%, for example, in Mitsubishi Corp.—but their degrees are mainly in economics or commerce. Mitsubishi Corp.'s 676 engineers and chemists make up 14% of its graduate staff. Roughly one sixth of the male staff of Mitsui & Co.'s chemicals division are technical graduates, though perhaps one third to one half of its machinery division men are engineers. The talk within chemical planning staffs in Tokyo often turns to chemical specialties and the emphasis they are beginning to receive from producers as heavy petrochemicals— now reaching market maturity in Japan—begin to lose their sparkle. Specialties mean a new level of technical service to customers, says Mitsubishi Chemical director Shozo Uno, as well as greater technical expertise in marketing. He expects a growing trend toward hiring technical graduates in sales departments. Already this year, Mitsui & Co. has created a fine chemicals department, and Mitsubishi Corp. will open a new department in October to develop its own capability in specialties marketing. To provide adequate technical service to its overseas dyes customers, Nissho-Iwai—another of the top 10 trading firms—is thinking of placing technical representatives of its suppliers in major Nissho-Iwai offices abroad. The company must in time decide, executive director Kazuo Nagashima tells C&EN, whether to boost its hiring of technical graduates or to route more of its chemical trade through specialized chemical traders. Industrial technology was among the most significant imports arranged by general trading firms after the war, and these companies still handle a substantial exchange of foreign and Japanese licenses in many industries. The largest chemical producers,
though, are relying more and more on their own efforts to scout foreign technology and to license their own processes abroad. Mitsubishi Petrochemical, for example, maintains twoman representative offices in New York and Diisseldorf whose function is technical scouting. Among the trading firms, Mitsui & Co. probably has the most centralized organization for technology exchange—a technical development department at Tokyo headquarters and technical development offices in New York and four European cities. Information. In their financing and forwarding operations, the trading firms might be considered tielines among banks, shipping lines, insurance firms, warehousers, and the makers and users of goods. But for one function—information gathering and integration—the general trading firms are leagues ahead of any other Japanese institution. Mitsui & Co., aside from its domestic branches, maintains 119 offices. Mitsubishi Corp. has 100. Both firms employ more than 2000 people outside Japan. The others among the top 10 operate, among them, several hundred offices abroad. Economic data and market information funnel through these networks into a firm's headquarters in Japan, where they are strained through an array of specialized commodity departments for evaluation. Aside from its use in matching buyers and sellers, this economic intelligence may be offered as an added service to Japanese manufacturers among the trading firm's clientele. Only recently, it seems, has the potential of using these intelligence systems to support comprehensive, longrange economic forecasting been grasped. Last year, in quick succession, all three of Japan's major industrial combines—Mitsubishi, Mitsui, and Sumitomo—disclosed formation of information syndicates, each inJULY 26, 1971 C&EN 21
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tended to streamline the group's eco nomic research activities and t o bol ster its electronic data processing abil ity to that end. Not surprisingly, each combine's general trading firm is linked squarely into the information syndicate. The largest of the trading firms are well along in realizing another po tential function—that of developer and promoter. The home market for consumer goods has swelled with Ja pan's growing affluence, yet the mamajor trading firms have tended to shy away from mass distribution in t h e past. The new aim is no less than to revamp Japan's traditional retail dis tribution system, an even more intri cate maze than is producer goods mar keting. At the center of the maze are some 1.4 million retail shops, of which about 85% employ four people o r fewer. Promotion of shopping centers and supermarket chains is the route be ing taken by the major trading firms to simplify distribution. Mitsubishi Corp. is building shopping centers through a 50°/o-owned subsidiary, for example. Aside from planning and partial financing, the parent firm sup plies construction materials and much of the equipment. The centers' super markets are stocked with chicken and pork products from a large-scale farm ing company (a 40% Mitsubishi Corp. subsidiary), whose feed-grain require ments are imported and in some in stances grown overseas by the trading company. Mass housing is another area ripe for the systems approach in Japan, and the general trading firms have begun lining u p companies t o coop erate in land procurement, building materials design and production, con struction, and finance. Overseas, the major traders have been central in developing long-range supplies of re sources such as ores and timber for Japanese industry. Meanwhile, as adjuncts t o their new development role, several general trading firms have taken on computer software de velopment, general contracting, steel fabrication, and equipment leasing. All such investments and sidelines, maintains Mitsubishi Corp., aim at assuring the firm a part in the trading action generated by projects abroad and at building its capability in mass distribution at home. Buying and sell ing are still front and center. But waiting in the trading companies' ranks could well be the means to a new level of integration for Japanese business around the world.
What in the world can you do with these Moly chemicals? Molybdenum Tetrachloride Molybdenum Dioxydichloride Molybdenum (III) Acetylacetonate Molybdenum Tetrachloride Dipyridine Molybdenum Oxytrichloride Molybdenum Oxytetrachloride Ammonium 5-Molybdocobaltate (III) Ammonium 6-Molybdocobaltate (III) Ammonium 6-Molybdoaluminate (III) Ammonium 6-Molybdochromate (III) Ammonium 6-Molybdonickelate (II) Molybdenyl Bis-Acetylacetonate Molybdenum (VI) Oxalate Ammonium 9-Molybdonickelate (IV) Ammonium 6-Molybdoferrate (III) 12-Molybdophosphoric Acid 12-Molybdosilicic Acid Sodium 12-Molybdosilicate Molybdenum Trichloride Molybdenum Trichloride Dibenzoate Molybdenum Naphthenate (Type 1)
I Here's what we'll do: SAMPLES and DATA to get you started. If you'd like to know the facts on any or all of these molybdenum chemi cals, drop us a line. If there's any in the list you'd like to try out just name it. We'll send you experimental samples for reasonable R & D requests. What in the world do you have to lose? Write or call Will Tschudi, Climax Molybdenum Co., One Greenwich Plaza, Greenwich, Connecticut 06830. Phone: (203) 661-3000.
CLIMAX MOLYBDENUM COMPANY A DIVISION OF
AMERICAN METAL CLIMAX. INC.
