This is the first part of a new series of reports written by industry specialists. The first 12 articles are about Japanese general trading companies, or sōgō shōsha.
The sōgō shōsha are unique, diversified and complex organizations that are known to have played a significant role in Japan’s economic rise, first in its rapid industrialization and commercialization in the latter half of the 19th century, and then in the swift rebuilding of its industry and the high-growth era following World War II.
This series on the sōgō shōsha is to provide a better understanding by explaining, in simple fashion, who they are, what they do, what makes them unique, how they developed and what their basic business model is, as well as their future challenges and directions, from the perspective and experience of someone who has worked in a sōgō shōsha for many years, using Marubeni Corp., my company, as the primary example.
An air of mystery
In the ensuing decades after WWII, the modern sōgō shōsha, as super traders, suppliers, wholesalers and distributors, optimized the supply chains of Japanese industry by providing for the raw material, energy and technological needs of upstream and midstream manufacturers in Japan, while also rationalizing distribution between the manufacturing sector and the downstream retail sector. At the same time, the sōgō shōsha marketed the products of Japanese companies overseas. This contributed greatly to Japan’s ascent as an economic superpower. What is less known is the significant role they have come to play on the world stage.
They have been referred to, over time, as monster traders, trading behemoths, invisible links, the world’s most efficient marketing channels and even creators of supply and demand. That said, few outside of Japan are familiar with these organizations, and even in Japan most have a difficult time explaining exactly what it is the sōgō shōsha do, which tends to lend an air of mystery to them.
First off, to give you an idea of the growing global scope of the sōgō shōsha, in just over the past five years we find that Marubeni has implemented more than 100 investments and new businesses and signed agreements for a number of major projects in at least 16 different industries, with about 80 percent taking place overseas in more than 30 different countries representing all regions of the world. This includes power plants in Indonesia and Thailand, iron mining in Australia, copper mining in Chile, aviation parts and grain distribution in the U.S., real estate development in China, cardboard container manufacturing in India, feed and chicken processing in Myanmar, the supply of railway cars to Argentina, food product processing in Turkey, a solar power plant in the United Arab Emirates and electricity retailing and cloud computing in Japan, to name just a few.
Now, by multiplying these times the number of sōgō shōsha, seven, you can imagine not only their extensive diversity and broad global reach, but also the significant role they are playing in the value chains of the world economy.
On the other hand, you may be wondering how could a company be so diverse and still be competitive as a business entity? Certainly, if a group of business professors were to look at these investments they would likely conclude that these companies were either some type of investment firm or fund or that they are businesses likely in trouble, much too widely dispersed to survive. How can a single entity be involved in all of these different industries? What in the world is its core business competence?
Actually, being in all these different industries is, to be sure, part of the sōgō shōsha’s core competence. In fact, contrary to what you might be thinking, the sōgō shōsha’s business is in truth quite simple to understand. They have only two basic businesses: The first is their traditional, main business as trader, supplier, wholesaler and distributor in the supply or value chain, upstream from raw materials, midstream to the final manufacturer and downstream toward the consumer; the second is as an organizer of large-scale infrastructure projects. What is more complex though, is how they carry out their businesses to keep themselves ahead of the game.
Lost in translation
So, how is sōgō shōsha defined in English? I must say the most common translation doesn’t really do it justice. In English, the term is often rendered as “(Japanese) general trading company, or firm, or house”. As you may have now gathered, this is a largely misleading translation.
A Japanese person, or even a Chinese person, who looks at the kanji for sōgō shōsha (総合商社), would immediately have a strong image of what they mean. A much more sophisticated, complex picture than general trading company is conjured up. The first character, sō (総), looks complicated because that is generally what it implies. It is often translated as general, but the nuance is more complex, as in comprehensive or all encompassing. It infers encompassing many different things. The second, gō (合), simply means to unify or combine. The third character, shō (商) means commerce or business, and the fourth, sha (社), can be deciphered as organization, or in this case company. So, what sōgō shōsha literally means is to combine or unify a wide range of functions, goods, services and companies into one commercial enterprise. A much better and more accurate translation for sōgō shōsha might be “diversified trading conglomerate.”
In addition, sōgō shōsha, for all practical purposes, is a brand name in Japan. Japanese associate it with words like huge, diverse, sophisticated and international. In fact, the sōgō shōsha are quite renowned in Japanese society, partially for the important role they have played in Japan’s economic development and partially because they operate at or near the top of Japan’s business pyramid, largely due to their significant presence in the supply chains of a broad number of industries.
Truth be told, with no other organizations like them anywhere else in the world, it might be said the sōgō shōsha are actually a brand unto themselves.
Patrick Ryan is a senior analyst engaged in global industry research in the Marubeni Research Institute, the research arm of Marubeni Corp. He has previously worked in International HR and International Corporate Strategies for Marubeni.
IN FIVE EASY PIECES WITH TAKE 5