Sumitomo Corporation - Company History

Lifting a 25-year ban to make room for demobilised employees

In 1920 the Sumitomo zaibatsu, through its director-general Suzuki Masaya (鈴木馬左也), declared that it would not establish a trading house[1], and for the next twenty-five years it sealed itself off from the trading business. While Mitsui had Mitsui & Co. and Mitsubishi had Mitsubishi Corporation, each with the full function of a general trading house (総合商社, sogo shosha), Sumitomo ran its businesses as the zaibatsu without one[2]. The entity that would later become Sumitomo Corporation was not a trading house either. It began as Osaka Hokko Co. (大阪北港株式会社), incorporated in December 1919 with capital of ¥35 million to reclaim land and build port works in the northern harbour district of Osaka[3]. The company passed under Sumitomo Goshi in 1927[4]; in November 1944 it absorbed Sumitomo Building and renamed itself Sumitomo Tochi Komu (住友土地工務)[5], and the following month it took over the practice of the Hasebe-Takekoshi Architectural Office, becoming an integrated property company engaged in real-estate management and in the design and supervision of civil-engineering and construction work[6].

With the war's end in August 1945 military demand vanished, and securing places for demobilised employees became urgent; director-general Furuta Shunnosuke (古田俊之助) therefore decided to revoke the ban[7]. That November, Sumitomo Tochi Komu renamed itself Nippon Kensetsu Sangyo (日本建設産業) and relaunched as a trading company handling the products of the Sumitomo affiliates and of leading manufacturers across other industries[8]. The business purposes in its articles of incorporation were widened to include the sale of civil-engineering and construction materials and of products of every other kind[9]. Kitazawa Keijiro (北澤敬二郎), the managing director of Sumitomo Honsha who had held the presidency concurrently, resigned, and executive director Takekoshi Kenzo (竹腰健造) succeeded him[10]. To choose someone to run the trading side, the accounting and personnel departments of Sumitomo Honsha put forward three candidates from the whole staff and settled on Toji Shunya (田路舜哉), a director of Sumitomo Metal Industries and deputy head of its copper and brass works[11]. Toji took office as managing director on 11 December and, three weeks later, had the organisation and the staffing in place for a sales department dated 1 January 1946[12].

The head office was in Osaka[13]. At the end of 1945 the payroll stood at 270; by the end of 1948, 350 people had transferred in from Sumitomo Honsha and the affiliated companies, demobilised servicemen and repatriates among them, taking the total to 720[14]. The largest contingents came from Sumitomo Honsha (159), Sumitomo Metal Industries (106) and Sumitomo Electric Industries (32)[15]. The sales department's first work was to dig out the aluminium and duralumin sheet buried in the bombed copper and brass works of Sumitomo Metal Industries, and the electric wire submerged by the storm surge of the Makurazaki typhoon at Sumitomo Electric Industries, then wash it, make it good and sell it[16]. When the purge from public office reached the business world in January 1947, three men who had been managing directors or above during the war — President Takekoshi among them — fell under it, and at the board meeting of 27 March Toji was chosen as the second president[17].

Listing, a new name, and the settled shape of a metals house

In August 1949, still under the name Nippon Kensetsu Sangyo, the company listed its shares on both the Osaka and the Tokyo stock exchanges[18]. In July 1950 it hived off the design and construction-supervision arm as Nikken Sekkei Komu[19], cutting away its origins as a property company. In March 1952 it placed an overseas base by establishing Nikken New York Inc. in the United States[20], and that June it renamed itself Sumitomo Shoji — Sumitomo Corporation[21]. Because its role was to carry the sales function of group companies such as Sumitomo Metal Industries and Sumitomo Metal Mining, its product mix leaned towards steel and non-ferrous metals, and in the industry it was called a kanehen house (金ヘン商社, after the metal radical in the Japanese script)[22]. Toji Shunya had spent six years from 1932 as manager of the Sumitomo Shanghai office (住友上海洋行), and was the only officer with trading experience among those in place at the relaunch[23].

In December 1962 the company brought the Osaka and Tokyo sales operations together as one and introduced a product-headquarters system, setting up nine headquarters: steel, non-ferrous metals, electrical equipment, machinery, agricultural and marine products, chemicals, textiles, materials and fuels, and real estate[24]. Capital was built up from $2.8M (¥1bn) in December 1956 to $29.2M (¥11bn) by June 1967[25], and in the 1967 business year the mix stood at metals 52 per cent, machinery 17 per cent, materials and fuels 12 per cent, chemicals 9 per cent, foodstuffs 8 per cent, and real estate and others 2 per cent[26]. The company also moved to strengthen its textile arm and to enter consumer businesses such as the Summit store chain, and turnover that year reached about $2.2B (¥790bn). Trading volume swelled so fast that the Sumitomo Shoji building in Kanda, Tokyo, was outgrown within three years[27]. In August 1970 it absorbed Sogo Boeki (相互貿易)[28].

A management that avoided projects running beyond ten years

In June 1979 the company introduced a sales-division system, binding its product headquarters into four divisions: steel; machinery and electronics; non-ferrous metals, chemicals and fuels; and consumer goods and materials[29]. On taking the presidency in 1981, Uemura Mitsuo (植村光雄) stated plainly that there was no need to chase showy large deals, and that as a matter of principle the company would not take on projects running longer than ten years[30]. While Mitsubishi Corporation put money into Brunei LNG and Mitsui & Co. into the Iranian IJPC project that would later bring it enormous losses, Sumitomo Corporation went on declining to join large overseas projects[31]. The policy showed in the results: in the year to March 1981 it lifted sales by 27.0 per cent, closing on the fourth-ranked Marubeni, and its ordinary profit margin of 0.38 per cent was the highest in the industry[32].

Opinion inside the company was split between directors who thought that, having seen Mitsubishi's success in Brunei, Sumitomo should move more aggressively, and directors who supported the cautious line having seen Mitsui's failure at IJPC[33]. While avoiding long-dated projects, the company did widen the fields it worked in. It entered leasing in 1963[34], and in October 1969 established Sumisho Computer Service in Osaka Prefecture, taking it into information services[35]. In 1975 it began selling Mazda vehicles in North America[36], and in 1976 it invested, jointly with Sumitomo Metal Industries, in seamless pipe for Saudi Arabia[37]. In 1988 it set out an integrated business enterprise concept (総合事業会社構想), turning to a policy of pursuing business investment in earnest alongside its established trading, and in 1991 it drew up a medium-term business plan, Strategy 95[38].

Disclosing ¥285.2bn of off-book trading, and full co-operation with the authorities

In January 1995 the company established Jupiter Telecommunications in Tokyo to oversee and run a cable-television business[39]. In June the following year it disclosed that Hamanaka Yasuo (浜中泰男), general manager of the non-ferrous metals department, had continued off-book trading on the London Metal Exchange for about ten years from 1987 and had generated vast losses[40]. Hamanaka was said to move 5 per cent of the world's copper trade, and in the industry he was known as Mr Copper. The trades ran on personal relationships with counterparties, and had continued without the company's knowledge[41]. Losses first estimated at $1.7B (¥190bn) swelled as the investigation went on, and in the year to March 1997 the company took a single extraordinary charge of $2.4B (¥285bn) for copper-trading-related losses, leaving a net loss for the year of $1.2B (¥146bn)[42].

President Miyahara Kenji (宮原賢次) disclosed the losses, then engaged an American law firm and, with the co-operation of the external auditors, set about establishing the facts[43]. The company co-operated fully with the investigations of the US Commodity Futures Trading Commission and the UK Securities and Investments Board[44], placing the preservation of its international credit above everything else in its response. The consolidated equity ratio fell from 13.2 per cent to 10.3 per cent, but the company did not fall into negative net worth[45]: the capital accumulated by staying out of long-dated projects absorbed the loss. The business continued, and thereafter compliance with laws and regulations was put at the top of the management agenda[46]. More than twenty years on, the weight of the breach is still handed down to new recruits in their induction training[47].