Rebuilding from the “losers’ camp”: a root-and-branch bad-asset cleanup (2002)

Shore up the defence first, then ride the market’s wave

The core of this decision was that, in place of a flashy growth plan, it concentrated first on building a body that would not collapse. Having fallen behind in disposing of bad assets, Marubeni — to escape an “epitome of the lost decade” of a share price in the ¥100s and heavy interest-bearing debt — narrowed its group companies, merged its steel business with a rival’s, and kept its credit lines from being cut. These were not measures to raise profit but defensive treatments to stop a break in cash flow from turning credit anxiety into an actual collapse.

That the Marubeni which had shored up its defence could then turn to record profits owed something, too, to the tailwind of rising resource prices that blew afterward. Separating skill from luck is hard; but at the least, unless you first ready a body that can catch the wave when it comes, a tailwind cannot be used. For a general trading house that entrusts its earnings to the uncontrollable waves of the resource markets, the very management of sequence — shoring up the defence on the way down, going on the offensive on the way up — is the crux of the business. Rebuilding from the “losers’ camp” is a suggestive case of a company learning that sequence in the body.