C. Itoh & Company, Ltd.
C. Itoh & Company, Ltd.
Incorporated: December 1, 1949
Sales: ¥ 14.07 trillion (US$ 70.11 billion)
Market Value: ¥ 267.2 billion (US$ 1.331 billion)
Stock Index: Luxembourg Tokyo Osaka Nagoya
Chubei Itoh was born in 1842, the son of a dry goods merchant. In 1853, the year Admiral Perry from the United States “opened” Japan to international trade, Itoh began to accompany his older brother on sales trips to Osaka and Kyoto. By 1859 the younger Itoh was making his own sales trips, selling cloth to merchants in Okayama and Hiroshima. The following year, at the age of 18, he established his own wholesale business and worked diligently to expand his small operation.
The 1860’s were a time of upheaval and change in Japan. The 264-year old government of the Tokugawa Shogun was overthrown in 1868 by loyalists of the Meiji Emperor. Itoh’s business continued to prosper in spite of the civil war. In 1872 he opened a larger shop in Osaka and within five years was one of the largest textile wholesaler-retailers in the city. A branch was opened in Kyoto in 1883, and the Osaka shop was designated the Itoh Honten, or “head office.”
Chubei Itoh and his nephew Tetsujiro Sotoumi opened a third shop in Kobe in 1885. The Itoh-Sotoumi Company was primarily involved in the exportation of textile goods through shokan, or foreign trading agents. The export trade was very profitable, in spite of the shokan, who collected large commissions. Profits from export sales were reinvested in the company’s domestic operations. Itoh opened a foreign office in Shanghai in an effort to bypass the shokan and their commissions. However, it was a difficult market to enter, and the company’s representatives lacked the proper skills needed to deal effectively with Chinese merchants. As a result, the Shanghai office consistently lost money.
Itoh died in 1903 and his second son, also named Chubei, inherited the business. The younger Itoh was well trained and proved to be every bit as adept in business affairs as his father.
A few years before, Japan asserted its political dominance in northeast Asia when it defeated Russia in a war for influence in the region. In particular, Chosen (Korea) became a neo-colonial possession of Japan. In 1898 a new shokan called Chosenya was established to handle trade between Japan and the Korean peninsula. It was a lucrative and developing market in which Chosenya had a monopoly. In 1905, however, the younger Itoh once again attempted to bypass the middlemen. He posted two company representatives in Korea, and later opened a full branch office in Seoul.
Itoh’s business ventures on the Asian mainland deteriorated during 1907. In Chosen there was increasing dissatisfaction with the “low quality of Japanese products.” On the other hand, representatives in Shanghai found it increasingly difficult to manage exchange rate fluctuations between the gold-based yen and the silver-based Chinese currency. Mismanagement at the Shanghai office became so acute that by 1908 it was sold to its employees and severed from the Itoh company.
The company recovered quickly, due mainly to a rapid increase in domestic trading activity. In March of 1910 Chubei Itoh, aged 23, went to London reportedly to study business administration. It is more likely, however, that he spent his time negotiating arrangements with English merchants. He discovered that the shokan, who presented themselves as powerful international figures in Japan, were actually small agencies with relatively little influence overseas. Itoh purchased large quantities of high-grade wool and other products directly from wholesalers in London and sent them to his company in Japan. Itoh also discovered that bank loans in London were commonly set at around 2–3%, substantially less than the 11–13% charged by the Yokohama Specie Bank in Japan. Taking advantage of these two factors enhanced Itoh’s ability to undersell competitors in Japan and reinvest a larger portion of the company’s profits.
Japan was a victorious nation in World War I and, as a result, was awarded substantial commercial and military rights in the Pacific. It was a period of tremendous growth for large Japanese companies, particularly the large conglomerates which had become known as zaibatsu, or “money cliques.” C. Itoh & Company was not considered a zaibatsu like Mitsui, Mitsubishi, or Sumitomo. It was, however, a substantial company, engaged in commercial trading at a time when trade had become extremely important to the continued growth of the Japanese economy.
The strong economy and rising demand for textile products transformed the import trading division of C. Itoh virtually overnight. Demand for Itoh’s products continued to grow faster than supply, causing prices (and therefore, profit margins) to rise with them. By 1919 the trading division had grown to twice the size of its parent company, and foreign offices had been established in New York, Calcutta, Manila, and four cities in China. As Itoh’s volume of trade grew, so did its variety of products. In addition to textile and agricultural products, the company handled machinery, iron and steel products, and automobiles.
Like most economies which experience strong economic reversals during periods of rapid expansion, Japan entered a serious recession in 1920 which adversely affected consumer demand. Due to the fact that C. Itoh was still a relatively small company without the full backing of a zaibatsu bank, it was forced to borrow heavily in order to cover its obligations and went deeply into debt. The following year the company was forced to reorganize. C. Itoh & Company was restructured and named the Marubeni Company. Another new company called Daido Trading was created from a division of C. Itoh Trading. It had previously been responsible for trade with Southeast Asia and the United States, but was ruined when demand for imports disappeared.
All three Itoh companies were forced to lay off hundreds of workers and suspend stock dividends for several years. Their recovery was slow, but gained momentum later in the 1920’s. Ironically, these companies experienced their strongest post-recession growth during the worldwide depression of the 1930’s. The Calcutta branch, which was closed in 1921, reopened in 1931. In the following years new offices were opened in Australia, Thailand, and Indonesia. It was during this period that the benevolent one-man-rule of Chubei Itoh II was replaced by a more consensus-oriented presidential form of management.
The decade of the 1930’s was a difficult period for Japanese business and politics. Right-wing militarists had terrorized their way to power and threatened not only to nationalize the nation’s industries, but to dominate all of East Asia and the western Pacific. In the short term, the zaibatsu and other large companies stood to benefit greatly because they were the primary suppliers of machinery, weapons and provisions to the growing Japanese military. In the long term, however, these same militarists had pledged to nationalize the zaibatsu and other companies. The Itoh companies were only three of hundreds who were placed in the difficult position of collaborating with the military government.
The militarists led Japan into a war against China in 1937, and later against Britain in 1940, and the United States in 1941. That year Itoh merged with Marubeni & Company and Kishimoto & Company to form a new company called Sanko K.K. The concentration of resources was intended to facilitate greater efficiency and conserve limited resources.
Despite the position of Japanese industry and the military, neither had the ability to mobilize or develop new technologies quickly enough to prevent the Allies from turning the war in their favor. Matters became particularly desperate when the Japanese mainland (and its factories) came within range of American bombers. In 1944, as part of an effort to rationalize Japanese industry, the government ordered Sanko, Daido, and a subsidiary of Itoh called Kureha Textiles to merge. The new company, called Daiken Manufacturing, existed for about a year before Japan surrendered.
After the war, the military occupation authority, “SCAP” (for Supreme Commander of Allied Powers), implemented a complete reorganization of Japanese industry. Many American-style commercial laws were enacted, including an anti-monopoly law which outlawed the zaibatsu. Although Daiken (Itoh) was not as large as the zaibatsu, SCAP ordered it divided into several companies.
When the reorganization was completed in 1949 Kureha, C. Itoh and Marubeni were made independent companies under separate management groups. Both Itoh and Marubeni were given the authority to conduct both domestic and international business. Itoh exported Japanese textile products on a barter basis in return for foreign grain. The trade was stable and profitable, and enabled the company to establish itself quickly. In 1950 Itoh trade representatives were dispatched to India, Pakistan and the United States. The United Nations war effort in Korea necessitated a change in commercial policies in Japan. On short notice Japanese companies, including Itoh, were contracted to supply food, clothing, and other provisions to United Nations forces in Korea. Itoh, which had already established an international network of suppliers, was quickly prepared to meet the sudden increase in business. The company product line, long dominated by textile products, was diversified to include petroleum, machinery, aircraft and automobiles.
When the Korean War ended in 1952 many of Itoh’s military contracts were cancelled. The demobilization in Korea caused a serious recession during 1953 and 1954. Hundreds of smaller trading companies were forced into bankruptcy. C. Itoh, however, was larger and better able to endure the poor economic conditions. It later took over the business of the smaller bankrupt companies and continued to expand its product line.
Unlike the former zaibatsu groups, the postwar Itoh companies (C. Itoh, Marubeni, and Kureha) did not merge back together. During this period zaibatsu groups circumvented many anti-monopoly laws by coordinating their individual company strategies through bankings groups (called keiretsu). C. Itoh was neither a prewar zaibatsu nor a member of a postwar keiretsu group. During the later 1950’s, however, the company accumulated enough capital to begin large-scale lending operations.
C. Itoh & Company and keiretsu group leaders such as Mitsui Bussan, Mitsubishi, and Sumitomo were engaged primarily in trading. They became know as sogo shosha, or “general trading companies.” C. Itoh experienced strong growth during the 1960’s, particularly on the strengths of its trading activities. An international information network was created which made the company more responsive to business opportunities around the world.
In the late 1960’s Itoh identified an opportunity to develop a nickel and cobalt mine at Greenvale in northeastern Australia. Itoh, in partnership with Australian interests, Mitsubishi and Nissho Iwai, started the project in 1971. Raw materials from the mine were to be sold to Kawasaki Steel and Nisshin Steel, among others, and used to produce stainless steel.
When OPEC countries forced a dramatic increase in the price of oil in 1973, oil-dependent countries such as Japan found themselves seriously vulnerable to inflation and interruptions of supply. C. Itoh recognized this as an area of great opportunity. In coordination with the C. Itoh Fuel Company, Itoh invested heavily in the development of new technologies for petroleum production.
In the mid-1970’s the Japanese government became concerned about another trading company called Ataka, which was nearly bankrupt. Ataka had gained a reputation for mismanagement and inefficiency. It was repeatedly warned by banks and the government to practice greater discipline. When it appeared that Ataka’s demise was inevitable, the Japanese government stepped in. In order to prevent the failure of such a large company (Ataka was Japan’s tenth largest trading firm), the government hastily arranged for a major portion of it to be absorbed by Itoh. When the merger was affected on October 1,1977, C. Itoh & Company moved from being the fourth to the third largest Japanese trading firm. The merger greatly increased Itoh’s interests in steel and chemicals, and further reduced textiles to about 20% of total sales volume.
In addition to its trading activities, C. Itoh has recently been involved in a number of large industrial projects, acting as a coordinator and providing financial support. Itoh’s largest foreign projects are the Hassi-R’Mel natural gas plant in Algeria, a cashmere factory in Mongolia, the Baoshan steel complex near Shanghai (led by Nippon Steel), and the Kaduna oil refinery in Nigeria (with Chiyoda Chemical). Early in 1987, however, Itoh backed out of the Greenvale Mine project when it appeared that demand for non-ferrous metals would not recover. The company is also involved in the development of natural resources, including petroleum products and uranium, and metals (despite ending its involvement with Greenvale).
Itoh’s primary product is its trading and information network, which enables it to coordinate business projects and see them through from planning a factory to marketing its final product. Unlike many of its competitors, Itoh’s expertise lies not in engineering, but in organization, management, and financial planning.
Kurita Water Industries, Ltd.; Fuji Oil Co., Ltd.; Daiken Trade and Industry Co., Ltd.; C. Itoh Fuel Co., Ltd.; Takiron Co., Ltd.; Sanko Steel Wire Mfg. Co., Ltd.; Century Research Center Corp. C. Itoh & Company also has subsidiaries in the following countries: The United States, United Kingdom, West Germany, Australia, Hong Kong, Singapore, and Brazil.
The Soga Shosha: Japan’s Multinational Trading Companies by Alexander Young, Boulder, Colorado, Westview Press, 1979.