In the post-war era, integrated trading companies led Japan's economic growth and played an important role as a bridge between Japan and the rest of the world. Today, people, goods, and money move freely across national borders as economies and societies undergo dramatic change. What roles are required of integrated trading companies? This content, in an eight-installment series, attempts to redefine the roles of present and future integrated trading companies, while showcasing the wide range of business activities of Sumitomo Corporation.
The history of integrated trading companies is one of expanding business scope. The basic trade model employed for several decades after World War II—exporting Japanese products overseas and importing resources, food items and other products from overseas—as undergone various transformations in its development. One of the business sectors offering Sumitomo Corporation the surest footing along this path of development has been the crop protection business.
Kotaro Tameda has been involved in the crop protection business for 25 years since joining the company. He has overseas business experience in Russia and France, and he now treasures that experience: "Sumitomo Corporation is a company that offers opportunities, and I hope to put the things I learn from these opportunities to good use in my future career."
Integrated trading companies, corporate entities that are said to be unique to Japan. In the West, trading itself is seen as the core business of Japanese trading companies, and it was indeed the case that trading constituted the business core of integrated trading companies for a time following the end of World War II.
Integrated trading companies were undoubtedly one of the corporate groupings that drove Japan's miraculous postwar rapid growth. Leveraging their human capital, global networks, financial resources and other capabilities, integrated trading companies pursued dealings with companies from developed Western countries. The low exchange rate provided another potent weapon in their global activities, and integrated trading companies took advantage of the Japanese yen's competitiveness to achieve major success in the trading business by delivering inexpensive good-quality Japanese products to the rest of the world.
This structure changed following the 1985 Plaza Accord. The developed countries came to a consensus in this Accord of seeking a higher yen and a cheaper dollar, and the yen subsequently surged from the USD1=JPY200–250 level to the JPY100–150 level, losing its status as a cheap strong currency. Kotaro Tameda of the AgriScience Department joined Sumitomo Corporation during this period as the trade environment was undergoing great change. The AgriScience Department is wholly responsible for Sumitomo Corporation's crop protection business, and Tameda currently serves as the department's general manager.
"Our company started exporting crop protection products from Japan about half a century ago. That simple export model continued until the latter half of the 1980s. When I joined the company in 1989, the yen's rise was compelling the company to seek out a new approach to the crop protection business. I thus became an employee of Sumitomo Corporation just as the ‘halcyon days' were drawing to a close," Tameda reminisced.
Developing a model not solely reliant on simple trade was an issue facing all integrated trading companies at the time. Many trading companies attempted to resolve this issue by expanding their areas of business. The crop protection business can be expanded in two directions: upstream or downstream.
Crop protection products are delivered to farmers via manufacturers and traders as well as local wholesalers and commission agents. The question confronting trading companies was whether to expand their role as traders to the "upstream" manufacturing sector and participate in product development, or to expand "downstream" and take on the two roles of exporter and wholesaler. Sumitomo Corporation chose the latter.
Takashi Tanaka has been posted to three European countries, and now serves as the leader of the head office's AgriSience Investment & Development Team. "Taking a long-term perspective and building relationships of trust with partners overseas is the way Sumitomo Corporation does things," he notes. Spending time with his two children is his greatest joy.
The respective strategies of integrated trading companies in expanding crop protection business models were not that disparate. Sumitomo Corporation's distinctiveness lay in the fact that it chose Eastern Europe as the stage for extending its new model.
In 1992 Sumitomo Corporation launched a company to import and sell crop protection products in Hungary, and established similar companies in Poland in 1994 and in Romania in 1997. Why did the company choose Eastern Europe instead of the more infrastructurally robust North America or Western Europe or the geographically closer Asia? The frontier spirit characteristic of Sumitomo Corporation is manifest in that choice. Tameda explains:
"Our company had earlier been engaged in trade with the communist bloc of Eastern Europe and the former Soviet Union. Just as we were being confronted with the need to establish a new model in the crop protection business, democratic revolutions began to take place in Eastern Europe. Creating new crop protection markets previously non-existent in the liberated countries of Eastern Europe…that was our challenge."
The company succeeded fantastically in this challenge of taking the lead in opening up undeveloped markets utterly lacking in free competition. The import and sales of crop protection products took root as a new business model that was later applied to the rest of the world. Sumitomo Corporation has now extended its crop protection products imports and sales to Europe, Russia, North America, South America, East Asia, Oceania and Africa (about 30 countries worldwide).
According to Satoshi Kaneta, "Each and every employee of a trading company is a merchant, and the greatest sense of achievement for a merchant comes when a sale is concluded." After working in the textile and petcare product sectors, Kaneta was assigned to the AgriScience Department in 2009. He laughingly boasts, "I am most proud of never once in my life having gotten a cavity."
Naturally the next new model for crop protection business was also born in Eastern Europe. In 2011 Sumitomo Corporation purchased Alcedo S.R.L., a Romanian distributor of agricultural materials, and followed a new business model of selling crop protection products, seeds, farm equipment and a wide range of other products directly to farmers. Known as "Multifaceted Support for Crop Production," this new model expanded business another stage further downstream from wholesaler to commission agent. With this model in place, Sumitomo Corporation established a system that enabled it as a single company to connect manufacturers and end users in different countries.
The purchase of Alcedo in Romania took two and a half years. It is no simple matter to succeed in business in a foreign country, and the difficulties go far beyond the purchase negotiations. Takashi Tanaka, who has crop protection business experience in France, Germany and Hungary, notes:
"You must gain the trust of your business partner if you are to succeed in business. This is a low-profile, hands-on, time-consuming task, one that I believe must be grounded in integrity."
Tanaka says that it would be a misjudgment of Sumitomo Corporation's true intent to view it as a company coming in from Japan just to make a quick buck. Sumitomo Corporation seeks out partners that will take the time to foster business together, he asserts, and integrity is the mindset needed to help potential partners understand this.
Satoshi Kaneta, who spent three and a half years in South Africa working in the crop protection business, is another person with first-hand experience of the difficulties of doing business overseas.
"When engaging in business in a country not only where the language, the culture, the customs are all different but where even the name of Sumitomo Corporation is almost entirely unknown, we have to explain from the beginning the value that we provide, an aspect of work that genuinely requires perseverance."
These three employees now working at the head office in Japan—Tameda, Tanaka and Kaneta—are unanimous in insisting that they would go overseas tomorrow if given the opportunity, despite the difficulties they experienced in the past. This is because they are convinced that being put in a global environment truly puts one's business skills to the test.
Tameda boasts, "The greatest strength of a integrated trading company is that it is staffed with people capable of taking on the world."
The world's population currently exceeds 7 billion, and this figure is expected to rise by another 2 billion by 2050. To obtain enough food to feed this population from the planet's limited amount of cultivated land, agricultural productivity must be increased even further. This is a major reason that safe and high-quality agrichemicals are in demand, and it makes Sumitomo Corporation's worldwide provision of crop protection products all the more significant.
However, Sumitomo Corporation's crop protection business does more than just help resolve global food issues. Future business expansion could also provide direct benefits to Japanese consumers.
"Heretofore we have regarded farmers as end users, but there is still a further link in the agricultural value chain: the general consumer who enjoys the benefits of farm goods. Taking receipt of the produce grown by farmers to whom we provide crop protection products and then delivering this produce to consumers in Japan and the rest of the world...developing such a model is now our dream." (Tameda)
The commodities grown overseas using Japanese crop protection products are delivered to consumers in Japan and enrich the Japanese diet. It may indeed be the case that only integrated trading companies are capable of creating such value chains spanning the world. The employees of the AgriScience Department continue their work globally today, driven by an ambitious dream and an enduring frontier spirit.
(Honorific titles are omitted)