What are the distinguishing characteristics that define a “sōgō shōsha”?
This is the third part in a new series of reports written by industry experts. The first 12 articles relate to Japanese general trading companies, or sōgō shōsha.
We know that the Japanese sōgō shōsha are unique business organizations that cannot be found outside of Japan. So what makes them unique, what are their distinguishing features?
30,000 different products
The first distinguishing feature is what I call economies of scope and scale. The sōgō shōsha are basically middlemen, brokers, middlemen, suppliers, agents, distributors or traders if you prefer, between buyers and sellers. All of these terms, to some extent, mean the same thing. This is their core competence. After World War II, they imported raw materials, intermediate goods, energy resources, and industrial machinery and equipment needed to rebuild Japanese industry. They also brought the foodstuff to help feed the Japanese people. Eventually, as Japan reindustrialised, the sōgō shōsha began to export all the goods and manufactures they could, such as textiles first, then steel, industrial machinery, and ships.
Now, since the sōgō shōsha were basically just middlemen with little or no ownership over raw materials or means of production, there were only two ways for them to actually increase their income. One was to process the goods and commodities they traded in ever-increasing volumes, meaning scale: millions of tons of coal, grain, or paper and pulp, or hundreds of thousands of ‘computers. The other way to increase profits was to take their business expertise, mainly in raw materials, energy resources and food, and apply it to other items, including higher value products like motor vehicles, airplanes, medical equipment, etc. This is called reach, increasing the number and types of goods they trade. It is said that a single sōgō shōsha now handles over 30,000 different products on average, ranging from “noodles to satellites” or “tissue paper to airplanes”.
Handling such a variety of items in such huge volumes is a unique feature of sōgō shōsha that is not readily found in other commercial organizations.
And, when you think about it, the “shsha-man” or shōsha- (wo) man, the popular euphemism used in Japan for those who work for the sōgō shōsha evoking the image of the international and the elite, really had to push, really had to work to find new customers, new business and new markets. It’s an integral part of the DNA of the shōsha man and woman: knowing the channels, markets, customers, technology and industry trends in every supply chain from industry to industry. globally better than the companies that actually operate there.
Center of a global network
The second distinguishing characteristic of sōgō shōsha is their industrial diversity, the large number of subsidiaries they own, and their global reach. The sōgō shōsha operate in a range of industries as the center of a conglomerate across a vast global network.
To simplify, the activity of the sōgō shōsha is simply divided by industry. Using the organizational chart of Marubeni Corp. as an example, there are chemicals, food, energy, metals and minerals, forest products, textiles (Lifestyle division), factories and various machinery and other business divisions broken down by industry. Now each of these divisions, 16 business divisions in the case of Marubeni, act almost like individual companies in their own right, with responsibility for their own business strategies around the world: upstream, middle and downstream of their industry.
As part of its business strategy, each division can buy a business, form a joint venture, start a new business, or take a small stake in a business for strategic purposes. These companies are the subsidiaries and affiliates of the business division and constitute the bulk of the sōgō shōsha investment. Marubeni has around 430 of these subsidiaries and affiliated group companies all over the world, including Japan, with some of the other sōgō shōsha having roughly the same number or more.
In addition to Marubeni in Japan (global headquarters), which consists of these 16 business divisions (and six group units), there are also corporate subsidiaries abroad, or smaller versions of the headquarters: for example , Marubeni America Corp., Marubeni Europe PLC, Marubeni (China) Co., Marubeni ASEAN Pte., And so on, have most of the same business divisions as Marubeni in Japan, as well as their own offices. Marubeni has around 130 of these offices, of which around 120 are abroad.
These 130 head offices combined with the 430 subsidiaries and affiliates of the business divisions form the Marubeni group and employ approximately 40,000 employees. Now, with nearly 70 percent of these group companies also overseas, Marubeni and the other sōgō shōsha have between 400 and 600 business units operating in around 70 to 90 countries outside of Japan.
There aren’t many organizations involved in so many industries that run so many businesses on such a large global basis.
A range of non-commercial expertise
The third distinguishing feature is what I call the economies of functions. During the exercise of their traditional basic role as trader and wholesaler between buyers and sellers, sōgō shōsha have developed other skills and expertise in the areas of information, logistics, finance / investment. and risk management, not to mention marketing. These functions have become very important to their business. In addition, by combining these functions, they also became organizers of large-scale projects.
The foundation of the sōgō shōsha’s information function is their vast global network. In the case of Marubeni, it is more than 400 units in almost 70 countries linked by digital equipment. Before the emergence of computing on a large basis, it was said that the global networks of the sōgō shōsha were only surpassed by that of the US Department of Defense due to their heavy use of telex machines around the world. . However, they lost much of their hardware advantage with the onslaught of computing. However, they still have a software advantage, which is the people they have in each of these units in each of these countries who liaise with governments, companies, partners, clients and clients who collect and analyze directly market information to create new business, supplement current business and provide valuable information to their customers.
Another important function is logistics or the transport and distribution of goods and materials. As traders, this is a natural process for the sōgō shōsha. With their expertise in warehousing, customs clearance, various types of insurance, shipping arrangements and intelligent supply chain management systems, they can, from the buyer’s doorstep.
Finance is also an essential function. In finance, they are involved in granting credit, granting loans, debt guarantees, currency hedging and trading, forward contracts, project finance and investment, among others. Providing credits, loans and debt guarantees to their customers, buyers and sellers, to advance business transactions is an important part of their business, as is project finance for large-scale projects, and investment , or ownership, in core businesses to protect themselves and improve their profit structure as intermediaries in the supply chain.
Another function is risk management, including credit risk, investment risk, logistics risk and country risk, among others. With a long experience, i.e. in many cases of errors, in carrying out commercial transactions between countries and in various sectors and product areas, they have been able to set up systems sophisticated risk management systems to strengthen and complement their businesses and, in many cases, the businesses of their clients, as part of the value of sōgō shōsha lies in taking risks that their clients are unwilling to take.
Finally, by using the sōgō shōsha global information network in combination with their trade, logistics, finance / investment, marketing and risk management functions, they can provide multiple services to their clients as that sort of super one-stop-shop provider, while at the same time allowing them to organize large-scale infrastructure projects.
Without a doubt, it is unusual to find such an array of functions integrated under one roof in a commercial enterprise.
Patrick Ryan is a senior analyst engaged in global industrial research at the Marubeni Research Institute, the research arm of Marubeni Corp. He previously worked in international HR and international business strategies for Marubeni.
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Marubeni, trading houses