Summary

Research on SOGO SHOSHA:
Origins, Establishment, and Development
A Report of the JFTC Special Research Committee
on Sogo Shosha Principles Report

Author:Professor Takayuki Tanaka
of the Faculty of Economics, Senshu University
Publisher: Toyo Keizai Inc.

The JFTC established the Special Research Committee on Sogo
Shosha Principles in October 2010. The committee has built on
research regarding Sogo Shosha, which are institutions said to be
unique to Japan. These research findings were published in March2012 in Japanese.
The following is English translation of the summaries.

１．The purpose of this book is to reveal the following three points:a) What is SOGO SHOSHA, and how is it different from similar
overseas business categories?
b) What are the conditions under which SOGO SHOSHA can beestablished, and why are they only established in Japan?
c) How are SOGO SHOSHA changing?
２．SOGO SHOSHA, the general trading company, is a term whichappeared in the postwar period of Japan, and Japanese people
started using it from around 1955. In this book, I will notpredefine SOGO SHOSHA but, for the purposes of this discussion,
I consider 10 companies as SOGO SHOSHA which appeared justbefore the high economic growth period after the World War II:
Ataka & Co., Itochu Corporation (C. Itoh & Co.),
Kanematsu-Gosho Ltd., Marubeni Corporation, Mitsubishi
Corporation, Mitsui & Co., Ltd., Nichimen Corporation(Nichimen Co., Ltd.), NisshoIwai Co., Ltd., Sumitomo
Corporation (Sumitomo Shoji Kaisha) and Tomen Corporation(Toyo Menka Kaisha Limited). People started using the term of
SHOSHA, or trading company, in the same meaning as today
around the postwar period; but currently there is no definition
with a consensus even in the academic world of commerce andbusiness administration studies. As a matter of convenience, wewill consider “wholesalers which mainly engage in export andimport trade” as SOGO SHOSHA in this book.

３．After opening the ports to foreign vessels at the end of the Edoera, initially, trade business was mainly conducted by foreign
merchants or traders from the western countries, but graduallyJapanese trading companies developed and replaced them.
Subsequently, in the modernization period of Japan, some trading
companies as parts of family-run conglomerates called Zaibatsu,
showed development like “SOGO SHOSHA” until the end of theWorld War II. A typical example was the old Mitsui & Co., Ltd.,and it set its form as the origin of SOGO SHOSHA by the 1890sin the middle of the Meiji era. Out of the World War I boom, some
general merchants and traders such as the old Mitsubishi
Corporation, Suzuki & Co., Iwai & Company, Limited and Okura& Co., Ltd. grew rapidly and successfully followed the same path.
During this time, giant specialized trading companies such as
Japan Cotton Trading Co., Ltd., Toyo Menka Kaisha Limited, andGosho Company also developed independently.
４ ． The following four points can be raised as the requiredconditions for setting the prototypical SOGO SHOSHA andrunning such establishment from Meiji until the end of the WorldWar II.
a) Prewar trading started at the time of opening the country underunequal treaty with western countries.
b) Japan was a developing country which locates halfway aroundthe world, in the Far East.
c) Economy grew rapidly under the circumstance of encouraging
new industry.
d) The Zaibatsu, the industrial and financial businessconglomerates, developed progressively.

We can note the following four points as the basic characteristicsof the prototypical SOGO SHOSHA.
a) They dealt with a variety of products.
b) They targeted various regions for trading.
c) They had established some kind of institutionalized modern
business management system for risk management on wholesale
distribution and business expansion of branches.
d) They had strong ties with the domestic industry and invested
substantially in various kind of business.
５．Postwar trade started with one controlled by the government
based on policies of the American occupation. However, private
trade was gradually permitted, and operations of trading
companies accelerated as free trade resumed in 1950. The SOGOSHOSHA was being formed during this time. As the old Mitsui &Co., Ltd. and the old Mitsubishi Corporation, the prewar twin
jewels of the prototypical SOGO SHOSHA, were broken down by
the order of dissolution from the occupation forces, at first
fabric-specialized trading companies in the Kansai area started totake another form of SOGO SHOSHA through improving andrestructuring non-fabric departments within the company andexpanding their business domains through mergers andacquisitions. Next, steel-specialized trading companies came up
and followed the same path. Following this, the subdivided Mitsui& Co., Ltd. and Mitsubishi Corporation each achieved grandmergers, where they brought together companies that had been
affiliated with the former family group. Additionally, Sumitomo
Shoji Kaisha (Sumitomo Corporation) began operating as a
trading company of the Sumitomo Group. As such, 10-major

SOGO SHOSHA framework was established around 1960 in the
beginning of the high growth period.
６．The following four points can be raised when you consider thenecessary conditions which enabled and promoted the formationof the SOGO SHOSHA in the postwar period, taking into
consideration the conditions for setting the prototypical SOGOSHOSHA and running such establishment in the prewar period(aforementioned “4”).
a) Postwar trading started under the rule of the occupation forces,
and underwent the transformation from controlled trade to free
trade.
b) Export items were low-technology non-differentiated products,
and export destinations had different commercial practices.
c) Economy recovered and grew rapidly.
d) The relationship within corporate groups did not break down
completely and went through postwar reforms.
The following can be pointed out as the basic characteristics of
SOGO SHOSHA.
a) There are various types of trading products.
b) Fields of trade range from domestic commerce, export andimport trade to triangular trade.
c) Trade volume is enormous in a transaction.
d) They function as organizer for the industries through provisionof products and market development.
e) They have many subsidiaries and affiliates, and havecharacteristics like a holding company.
f) They have modern business management system.

７．When you look at the ranking of trading companies in the world
today according to Forbes Global 2000, 11 Japanese trading
companies are counted in the top 21 including five Japanese
SOGO SHOSHA which dominate the top five (2010 version).
Obviously, Japanese SOGO SHOSHA show overwhelming
presence in this category. There are 18 companies from Asia
including four South Korean companies, and only threecompanies come from Europe. There are not many giant trading
companies in the western world.
８．In mid-1970s, one after another developing countries at the timesuch as South Korea developed measures to foster general trading
companies like SOGO SHOSHA. As a result, general trading
companies grew rapidly in South Korea and heavily contributed toits economic development. They have similarities to Japanese
SOGO SHOSHA, but also have many differences such as thatthey couldn’t get out of the role of contact center they played forthe chaebol, or the Korean family-run conglomerates, and thus
had low import rates in practice. There seems to be similarbusiness entities in other developing countries, but their scales
cannot compare with Korean trading companies. However, it ispossible that large scale business entities like SOGO SHOSHA
may develop in emerging countries such as China in the future.
Furthermore, in 1980s the U.S. tried to foster export trading
companies as part of measures to dissolve trading deficit, but invain.
９ ． When you look back at the history of western developed
countries, multilateral trading companies with diversified productd) The relationship within the Zaibatsu (pre-war period) andcorporate groups (post-war period) ran deep and strong so thatthey could be sustained by domestic industry.

lines similar to Japanese SOGO SHOSHA operated actively in the
U.K. from the prewar period and also survived after the WorldWar II until 1970-80s. As a result of being forced by the capital
market to focus on businesses with high profitability, however,they were forced to end their development as general trading
company. In Germany, trading companies were responsible forexports until around 1910s, but subsequently larger manufacturers
undertook to export products directly, and the frameworktransitioned to one where trading companies took up products
from small- and medium-sized companies for export todeveloping countries. During this time, there were no business
entities which developed like SOGO SHOSHA. In the U.S., therole of exports in economic development was small to begin with,and they didn’t have strong interests in marketing for overseas
market, hence operations of trading companies were in low gear.

11．After the establishment of 10-major SOGO SHOSHA framework,
the future of profit structure centered on trade (exports andimports, domestic, and triangular traditional trade) did not give
SOGO SHOSHA a bright prospect. When the high growth ended,
as Japanese economy faced various problems and difficulties,
SOGO SHOSHA responded and transformed their businessstructure. In the midst, a organizational change gradually occurred
where new investments in enterprises pursued the aim to increase
return on investment whereas existing domestic and foreign
investments in enterprises were mainly used for the purpose of
securing trade commercial rights.

10．The following four points can be noted as we sort out thecharacteristics of Japanese SOGO SHOSHA when compared topast British multilateral trading companies as well as American orGerman trading companies.
a) Exports had significant meaning in the takeoff of the economy
and played a strategic role upon request by the government.
b) Highly educated people assumed and carried out responsibility
for top management all the way to bottom level and had
established modern business management system from the
prewar period.
c) In the prewar period and the beginning of the postwar period,
the product line was mainly low-technology non-differentiatedproducts.

12．During this time, as SOGO SHOSHA faced the occurrence ofcrises and new risks, they enhanced risk management system,
strengthened corporate governance, and conducted depreciation of
non-performing or unprofitable assets which were found in theaftermath of the bubble economy. However, those who could not
perform as such on their own were driven out of business, andmergers and realignments took place around 2000. Today, SOGOSHOSHA are the seven companies: Itochu Corporation, Marubeni
Corporation, Mitsubishi Corporation, Mitsui & Co., Ltd., Sojitz
Corporation, Sumitomo Corporation and Toyota Tsusho
Corporation. They currently enjoy unprecedented good
performance, as natural resources-related investment income
increased among others.

13．The organizational change after the establishment of 10-major
SOGO SHOSHA framework (aforementioned “11”) is often
considered as “transformation into enterprise investmentcompanies”. Contemporary SOGO SHOSHA not only carry manydifferent consolidated subsidiaries but coordinate themsystematically and operate as an entire group in order to foray intosome manufacturing businesses and service businesses. On theother hand, what also definitely contributed to earnings was profit
from investment in enterprises where they didn’t retain
management rights over invested companies. As you can see, theorganizational change of contemporary SOGO SHOSHA has two
sides which are “foray into some manufacturing businesses andservice businesses through consolidated subsidiaries” and“transformation into enterprise investment companies”.
14．These two movements are both supported by investment inenterprises, but they are conducted in forms such as:a) Splitting up and subsidizing existing business of the main body;b) Starting up new subsidiary; andc) Taking a stake in existing corporation.
In SOGO SHOSHA, when investing in enterprises, management
strategy of “divestiture and recycling of assets” is adopted, bywhich they control the entirety of a group appropriately byincreasing consolidated subsidiaries and affiliates through newinvestments, as well as selling them and withdrawing from
unprofitable business. To secure interests in overseas natural
resources-related investments, partner selection proves to be very
important. Furthermore, value chain strategy is gaining prominent

attention which expands opportunities to realize various earnings
models at every stage of the field from upstream to downstream
by utilizing commercial rights in existing business fields.
15．It is difficult to express in one word current SOGO SHOSHA
which experienced two structural changes as we saw in “13”, but I
will take the liberty of saying that it is a “General EnterpriseManagement and Enterprise Investment Company”. If I can makea slight note, it should be added that:a) It is conducted by investment from the main body throughconsolidated management.
b) Trade business plays a key role as the foundation of business
operation and enterprise investment.
The following three points can be pointed out to explain how
SOGO SHOSHA differs from simple and common investmentcompanies (investment trust and hedge fund).
a) It runs its own business and has the function of businessformation.
b) It maintains trade business as its foundation of operation.
c) It has discerning ability for partner selection.
We can raise the following two points as the positive
characteristics of SOGO SHOSHA:a) Optimism to face difficulties constructively and “ability toadapt”, andb) Clear awareness of its own mission which is to respond tonational request and customer’s needs.
16．As we reconsider the conditions for setting of SOGO SHOSHA
using “4”, “6”, and “10” as reference, the following four points

can be raised:a) Necessity for national policy,b) Export structure centered on low-technology non-differentiatedproducts and export destination with different commercial
practices,c) Rapid expansion of the economy, andd) Deep involvement with domestic industry.
However, these conditions are all becoming vague. On the other
hand, emergence of the following three factors can be noted forexistence of SOGO SHOSHA, and these are becoming rather
stronger.
a) Risk tolerance through diversified business fields,b) Ability to discover source of earnings and realize huge profits
by engaging in many business opportunities within one industry
sector, andc) Ability to discover needs and seeds in order to commercialize a
new product and service through information collection andanalytical ability formed by being involved in business
opportunities across many business fields.
These characteristics can be considered as being “general” in a
new sense.
17．As we look at the future of current SOGO SHOSHA as a
“General Enterprise Management and Enterprise Investment
Company”, the following four directions can be noted:a) Strengthening a “General Enterprise Management andEnterprise Investment Company”;b) Strengthening overseas business development;c) Maintaining trade as its foundation business; andd) Maintaining business relationship with domestic industry.
Points a) and c) as well as Points b) and d) both have conflicting
characteristics. SOGO SHOSHA have taken the course of Pointsa) and b) up to this day. Although, there is no question that thedirections of Points c) and d) characterize current Japanese SOGOSHOSHA, and today SOGO SHOSHA exist on such balance. As
we confirmed earlier, it is not feasible for existence of SOGOSHOSHA to be specific drastically and give up “general” in the
new sense. It is possible that each company differentiates into a
different form of management body in the future depending on
what it focuses on, but as SOGO SHOSHA face difficulties
constructively and have the “ability to adapt”, it is highly likelythat SOGO SHOSHA will continue to develop as a uniquemanagement body in the world.
18．Furthermore, SOGO SHOSHA will be needed in the years aheadin the following two points. That is:a) to be a step ahead of potential needs of the market and show to
the industries in Japan and the other countries while
market-oriented system of world economy progresses; andb) to be the one to discover and bear true national interest while
globalization of politics and economy progresses.