II . Outcome of the Study Groups - Summary

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12. GENERAL TRADING COMPANIES

1. General trading companies: a comparative and historical study -- Shin'ichi Yonekawa
2. A historical survey of general trading companies in the prewar period -- Kazutoshi Maeda
3. Development of general trading companies in the postwar economy -- Tsueno Suzuki
4. A brief history of general trading companies in their overseas activities -- Nobuo Kawabe
5. A history of a general trading company: the case of Mitsui -- Masako Sakamoto

The five papers of this study group address themselves to the issues of why it is that giant, diversified trading companies were born and developed to the extent they did in Japan. Conditions and basic reasons for their birth and subsequent development are sought. Within this context one could distinguish Yonekawa's paper as dealing with GTCs horizontally, i.e., in a comparative perspective between GTCs in Japan and abroad, and the other four papers which deal. with the subject matter vertically, i.e., through an historical analysis of GTCs in Japan.

It has been a general practice to explain the development of GTCs in terms of the characteristic features of Japan's historical pattern of industrialization. If such an explanation is correct, today's efforts by the developing countries to create general trading companies of their own would be seen as building castles in the air. The traditional explanation, however, seems to be false, because (1) as a matter of fact, general trading companies did also exist in Europe, such as Antony Gibbs and Co. and the Guthrie Corporation, among others; and (2) theoretically speaking, trading companies invariably result in general trading companies (dealing with a great diversity of products and over a wide geographical area) if they attempt dramatic expansion. For trading companies, as distinct from manufacturing companies, have little room for expansion through their own technological innovations, and the constant entry of rival companies tends to depress the commission ratios, necessitating scale expansion through a continuous diversification. It can be argued that it is the pattern of development in the West with specialized trading companies in the mainstream that is unique -- not that in Japan.

Specialized trading companies in the West often adopted the form of a partnership, and even when professional managers were employed, they often came to have their own companies rather soon. These companies usually lacked the tradition of in-house training for new employees. In the case of Japan, it was a top national priority during the early Meiji period to have a national company engage in direct foreign trade, rather than to allow foreign merchants a free hand. Thus the Mitsui Trading Company was established in 1876. In this context Mitsui was bound to become a general trading company, further encouraged by the following two factors.

First, they adopted the company form with limited responsibility, which guaranteedd active management.

What is more important, they employed many fresh graduates from colleges and universities (there were as many as 731 such employees in Mitsui immediately before the First World War), who became the talented manpower pool necessary for the comprehensive activities of these trading companies. Suzuki and Co. at one time was very successful and almost caught up with Mitsui, but subsequently went bankrupt partially because of its failure to recruit and train sufficient numbers of graduates within its own organization.

Maeda summarizes in a concise form the history of Japan's GTCs from the time of the Meiji Restoration up to the Second World War.

During the early Meiji era the protective policy of the government played an important role in the rise of GTCs. The latter half of the Meiji era, when Japan assumed a dual trade structure of the late-starter type
vis-a-vis advanced countries and of the advanced economy type vis-a-vis other Asian nations, saw the rise of a diverse range of trading companies. But at the same time a few trading companies came to handle a great variety of commodities, increasingly assuming the nature general trading companies (particularly Mitsui). Those trading companies which quickly adapted themselves to the changing industrial and trade structures, and often led these changes, achieved dramatic successes.

Suzuki adopts a similar approach to that of Maeda in seeking out the reasons why and the conditions under which trading companies achieved dynamic development in the postwar era. Emphasis is laid on why general trading companies achieved an even greater success than in the prewar days.

All the GTCs did not take the same developmental path. Mitsui & Co. and Mitsubishi Corporation took the form of the re-amalgamation of smaller trading companies which were born as offspring of the traditional zaibatsu clans when they were dissolved by the occupation forces. On the other hand, Marubeni Corporation and C. Itoh & Co., which had traditionally specialized in cotton trade, successfully diversified their businesses to become genuine general trading companies by vigorously entering new markets through the help of banks.

GTCs were sometimes born as a result of the development of groupings but at other times they themselves begot such business groups. What is to be noted is that the rise of business groups did not eliminate keen competition, but resulted in a dynamic kind of development of trading companies.

Kawabe points out a salient feature of Japan's GTCs to be their international activities, engaging not merely in import and export involving Japan alone but also in third country trade, the collection of technological information and assistance in technology transfer, the development of natural resources, and participation in manufacturing activities. These international activities are carried out through a large number of overseas offices.

Kawabe's paper then summarizes the forms in which GTCs go abroad, and discusses the functions of overseas offices by dividing them into (1) the handling of commodities, (2) businesses related to the handling of commodities, and (3) other supplementary businesses. Their activities are highly evaluated, particularly in developing new markets and new sources of supply (regarding the first function above), in assisting many Japanese manufacturing companies in their introduction of new technologies (regarding the second function), and in entering ocean transportation (regarding the third function) The Kawabe paper also touches on the unique management techniques of integrating various business areas.

The paper by Sakamoto is a case study of Mitsui, the first and largest general trading company in Japan. It generalizes the company's development process at each significant stage of industrialization. Specifically, it asks the following two questions: (1) How did Mitsui succeed as a general trading company in handling a great variety of commodities? and (2) How did Mitsui deal with the product cycle of commodities? For these questions, major commodities handled by Mitsui are analysed in terms of trade volume in various periods and why volume fluctuations occurred. One conclusion derived is the important role of foresightedness in meeting the needs of each period in Mitsui's successful development. In its early days it had to handle a variety of commodities as a government purveyor; during the period in which industrial capital was being established it entered the cotton industry, the most important industry of the period, by providing raw materials and dealing in finished products; and after the First World War it started to put certain manufacturing units under its direct control as the economy diversified further.