Nichimen Corporation

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Nichimen Corporation

13-1, Kyobashi 1-chome
Chuo-ku, Tokyo 104
Japan
(03) 3277-5111
Fax: (03) 3281-7980

Public Company
Incorporated: 1892 as Nippon Menka Kaisha
Employees: 4,380
Sales: ¥6.14 trillion (US$45.21 billion)
Stock Exchanges: Tokyo Osaka Nagoya

Nichimen Corporation, a member of The Sanwa Bank group, is one of Japan’s largest general trading companies. The company manages 85 overseas offices, and divides its operations into the following subdivisions: machinery and electronics, construction, general merchandise, logs and lumber, grain and foodstuffs, textiles, chemicals and plastics, metals, exports, imports, and fuels and energy.

General trading companies deal globally with a wide variety of product lines, through a large number of domestic and overseas branches concentrating on both import and export. In addition, they organize business ventures, often supplying technology and machinery as well as creating markets for the finished products. They have many subsidiaries and affiliates all over the world, because they prefer not to deal through foreign agents.

General trading companies made their first appearance during the Meiji empire, that lasted from 1868 to 1912. They were formed at the request of the government, which wanted to end the 200-year economic isolation that had characterized the preceding Tokugawa shogunate. Soon after their rise to power, the Meiji rulers noted that their external trade was in the control of foreigners; that international trade regulations, as well as foreigners’ languages and cultural backgrounds were unfamiliar to most of the Japanese business community; and that even domestic documents had to be passed through foreign hands. To eradicate such foreign domination, the government invited a few large, experienced holding companies to organize subsidiaries capable of introducing modern business practices and technology to Japan.

In the World War I years, these holding companies came to be known as zaibatsu (wealthy groups). They were family-controlled industrial and financial groups, which were classified as combinations of different companies dealing in goods and services as diverse as banking, shipping, and trading.

By the 1890s, the modernization program had transformed the Japanese economy, and the country’s entrepeneurs were ready for international ventures. First to enter the arena was the cotton trade. In earlier times, merchants had sold hand-spun cotton and hand-woven cloth. In Europe and the United States, machine-made textiles had been produced for some years. At the dawn of the Meiji era, the foreign merchants lost no time in signing commercial treaties with Japan, so that they could export large quantities of textiles and cottons into Japan. This practice soon threatened the domestic cotton industry, which partly met the challenge by establishing its own spinning mills, though supplies of domestic raw cotton were still meager.

It was in this business climate that Nippon Menka Kaisha (Japan Cotton Company) was established in 1892 by Japanese cotton spinners and merchants. The company’s capital in 1892 was ¥100,000, increasing tenfold over the following decade under the directorship of Kita Matazo, a legendary entrepreneur.

Nippon Menka initially imported cotton through exclusive foreign agents. The company gradually started opening its own foreign offices, however. Victory in the Russo-Japanese War in 1905 brought new foreign export markets in Korea and China, and in Manchuria, where the company also started spinning factories and cotton-ginning operations. Nippon Menka opened a Shanghai branch in 1903 and another in Hankow the following year, to export to China the cotton yarn produced by the rapidly expanding Japanese spinning industry. Now a large company with several overseas locations, it also was able to start trading between foreign offices, establishing Menka Ge-sellschaft in Bremen, Germany, and doing routine business in Liverpool, London, and in Milan. By 1910 the company even established a U.S. subsidiary called the Japan Cotton Company in Fort Worth, Texas, to give Nippon Menka a gateway to the raw cotton trade.

The World War I years spurred company efforts even further. As European countries with more pressing priorities stopped exporting their wares, Japanese products gained popularity. Seizing the moment, the trading companies began to use their growing expertise to diversify their product lines, increase their markets for raw materials, and invest larger amounts in manufacturing operations.

The company also developed a greater international network by opening more overseas facilities. Following the lucrative wartime growth, Nippon Menka opened its first South Seas office in 1917, with a product line that included cotton cloth, cement, and veneers. It was so successful that more South Seas facilities were opened in 1924.

The company also developed an interest in the South American wool trade during the war years. In 1919 it began to buy wool from Argentina and Uruguay, leading it to open an office in Buenos Aires. The next field of operations was Burma, from where the company began to direct its silk trade operations in 1919, in tandem with other ventures concentrating on cereals, rice, and cotton. Soon, the Burma office expanded its line of interests to include spinning machines, electric fans, beer, and canned goods. Other fields of operation were facilities for rice cleaning and oil manufacturing.

African operations began in 1916, when a representative went to Mombasa, Kenya, from Bombay to trade in raw cotton and cotton cloth. Chinese operations likewise gathered momentum when Nippon Menka started to sell cottons there and to export Manchurian soybeans. Also in China, the company did purchasing for the Nikka Oil Company and acted as a sole agency for a hemp company. Expanding into other activities, the company’s India operations started vertical integration. To allow it to complete all operations from buying through the shipping of cotton bales, the Indian office began to operate ginning and compressing factories.

The post-World War I boom collapsed in 1920, and the world slipped into a two-year recession. Although the recession of the early 1920s appeared not to affect Nippon Menka, whose paid-in capital stood at ¥26 million in 1925, with growth largely from the war years, the company was, in fact, losing money.

With the beginning of the Depression in 1929, the company problems began to show. Losses were ¥39 million in 1929, ¥2.5 million in 1930, and ¥1.2 million in 1931, for a total nearing ¥43 million. Nippon Menka may have hidden losses from shareholders during the 1920s, but eventually it had to report its financial difficulties.

The company’s fortunes declined for two reasons. Competitors, who initially had been loath to brave the heat and uncharted trade routes of cotton-supplying nations like India, proved to be enthusiastic traders when ways around these inconveniences had been established. Furthermore, during the 1920s, several small spinning companies had merged into larger companies, and these had formed themselves into the Japan Spinners’ Association, a production cartel that was capable of gearing production to earn reasonable profits in bad times.

Nippon Menka was a large concern, well able to diversify into fields other than cotton. Along with another general trading company, it organized the production of printed fabric for the Far Eastern markets. Rayon was produced and sold in the same way, and the silk business it had established during World War I was expanded. By the mid-1930s, Nippon Menka was an established textile trader, with overseas offices in several locations.

Despite the heavy losses in the beginning of the Great Depression, the company bounced back quickly. The decline in U.S. and European manufacturing brought opportunity to Japanese traders.

One important boost came in 1931, when Japan seized Manchuria from China, establishing the state of Manchukuo in March 1932. Immediately the Japanese government encouraged investment there, as well as the development of heavy industries such as iron and steel, oil, and cement.

For the rest of the 1930s Japan turned more to a wartime economy, expecting war with China. Expectation became fact in 1937, and the government instituted strict control of stocks and import-export prices, especially in the case of war-related products like oil. In other developments, Nippon Menka was assigned by the army to manage factories producing flour, matches, and starch. To show the broadened nature of its business, Nippon Menka Kaisha changed its name in 1943 to Ni-chimen Jitsugyo (Nichimen Enterprise).

When World War II brought defeat to Japan, economic policies were set by the Allied powers, who confiscated all foreign assets and forbade foreign trade. Despite its capital of ¥30 million, the company lost foreign assets worth an estimated ¥36 million during this period. In 1947 the Allied policies gradually began to relax to the point where goods could be sold on the foreign market by correspondence, although Japanese traders were still not permitted to go overseas. By 1949 export price regulations on textiles were removed, and Japanese traders went to all countries open to them.

The Allied occupation also saw the dissolution of the zaibatsu. At war’s end the four largest zaibatsu controlled one-fourth of the Japanese economy. In the interest of economic democracy, these holding companies were broken up to give other businesses foreign trade opportunities. The trading companies still occupied a weak position in relation to manufacturers, who had been in government favor throughout the war years and the inevitable period of shortages that followed.

Nichimen’s independence from zaibatsu affiliation now paid handsome dividends, for the company became one of the country’s top-ten trading companies. In 1951 it captured 4.3% of the country’s foreign trade. By 1958 its share had grown to 6%.

Along with the other trading companies, Nichimen had difficult postwar problems to face. Goods for foreign trade were in short supply. There was a dearth of export trade itself, for the lucrative China market had been lost to communism. Silk, once a principal export, was being replaced by nylon.

Nichimen and other trading companies needed extensive loans to stay afloat. The Ministry of International Trade and Industry decided to help those trading companies that were handling most of the country’s international trade. Because these companies also wanted to take advantage of growing domestic opportunities, credit sources able to supply large yen loans became a necessity. Nichimen, previously content with the Bank of Tokyo’s international lending ability, now needed another backer. In 1955 Nichimen forged what would become a long-term relationship with Osaka-based Sanwa Bank. Sanwa agreed to finance all of Nichimen’s domestic business.

The Sanwa Bank was a non-zaibatsu institution that had gained considerable influence during the occupation because it was exempt from the Allies’s order to disband. One of the country’s largest, it soon became the center of a large conglomerate, gaining further power through the usual banking practice of granting lower-interest loans to selected companies. Nichimen’s bond with Sanwa proved both profitable and permanent. Nichimen could not, however, become Sanwa’s international general trading arm because that position was already held by Iwai & Co.

To further strengthen domestic ties, Nichimen absorbed two textile dealers, Maruei & Co. in 1954, and Tazuke & Co. in 1960. Nichimen also made efforts to diversify into foodstuffs, wood, pulp, and machinery by networking through its foreign contacts. Extending its interest in industrial equipment, in 1963 the company acquired Takada & Co., a trader in machinery. In 1957 Nichimen Jitsugyo became Nichimen Co., Ltd.

Between 1955 and 1970 the Japanese economy saw rapid growth. Nichimen enjoyed great export growth, which by 1970 encompassed steel, electronic products, motor vehicles, and fibers—a considerable expansion over the textiles that had formed the nucleus of export operations before 1955. Although the general trading companies still served steelmakers and shipbuilders, most manufacturers began to purchase their own supplies and market their own products.

In 1955 metal sales constituted 15% of Nichimen’s operations, with textiles making up a further 57%, foods and chemicals 21%, and miscellaneous 7%. By 1965 the balance had changed—metals then constituted 28% of sales, textiles 36%, foods 7%, and miscellaneous products 19%. Eleven years later, metals and machinery had become the most important group, accounting for 47% of operations. Textiles made up 18% of the total, with food and chemicals 26%, and miscellaneous sales 9%.

Nichimen’s greatest growth came in steel. Like other general trading companies, Nichimen handled raw materials, purchased fabricated steel products, secured overseas markets for finished products, and handled the details of export. In addition, Nichimen was leasing supermarkets; negotiating agreements with foreign manufacturers looking for Japanese markets; and becoming more involved in farming, poultry, and beef ventures.

As a result of these activities, Nichimen’s annual sales rose from ¥305.6 billion in 1960 to ¥777.8 billion by decade’s end, rising still further by 1976 to ¥1.81 trillion. Business activities of the early 1970s included a Japanese joint venture with National Biscuit Company (Nabisco). In 1970 Nabisco took 45% ownership giving 10% ownership to Nichimen, and 45% to Yamazaki Baking Company, in exchange for the right to use the Nabisco trademark.

The increase in Nichimen’s product lines and its geographical spread was then allowing the general trading companies to organize complex projects cutting across many different industries. Ocean resource development, urban projects, and financial ventures were just three of many areas in which Nichimen was able first to create demands for a widening array of products, and then to supply them through different affiliates.

In the early 1970s the Japanese economy began to slow down, and the government started to curb trading companies’ stock holdings in response to increasing criticism of the firms. They were accused of stock speculation, of hoarding imported necessities, and of tax evasion. This situation came to a head with the 1973 oil crisis. In self defense, Nichimen and other trading companies decided to shift their emphasis from high-volume sales to social responsibility and efficient management, by adopting codes of behavior that promised ethical conduct in all business dealings.

Nichimen’s search for global reach brought the company into many different countries, where they participated in joint ventures. One project, a joint venture between Nichimen and certain other Japanese companies and Deepsea Ventures, Inc., a subsidiary of the U.S. company Tenneco, Inc., mined manganese nodules containing copper, nickel, and cobalt from the Pacific Ocean floor.

By 1976 Nichimen had subsidiaries or branches in London, Hong Kong, Rangoon, Calcutta, Bangkok, Singapore, Kuala Lumpur, and Burma. There also was a vast computerized communications system connecting company offices in most of the world’s business centers; these included new additions in Caracas; Lima and; Sandakan, Malaysia; and notably, in Warsaw and Moscow, for Nichimen was doing more business in Eastern Europe.

By the late 1970s Nichimen faced harder times. A soaring yen, climbing 25% in the year between July 1977 and July 1978, oil-price rises in 1973 and 1978, and serious competition from South Korea, Argentina, and other steel-and textile-producing countries with low labor and currency costs brought the accustomed low profit margins even lower.

Undaunted, Nichimen began to look for new avenues, many in developing countries like China and parts of the Soviet Union. For Nichimen, activities included the construction of a New Zealand sawmill in a joint venture with another Japanese company, a textile-dyeing joint venture in China, and contracts totaling ¥2 billion for the first stages of a water-and sewerage-system modernization program in Giza, Egypt.

New effort also went into third-country trade—overseas business ventures in which the Japanese company sold the products of another country in yet a third country. Vigorous foreign operations did not curb the development of domestic ventures such as condominium and office block construction, jewelry imports, and retailing. Other operations concentrated on importing; lumber came from the Soviet Union, and foodstuffs from Thailand and China.

In 1982 Nichimen Co., Ltd. changed its name to Nichimen Corporation. By the end of the 1980s, the company had opened new offices in Madras, Khabarovsk, Barcelona, and the Soviet Union, bringing to 85 its total number of geographical divisions. There were also 129 major subsidiaries and affiliates.

Nichimen Corporation’s 1985 financial year saw net sales of ¥4.4 trillion, which by the end of the 1980s had grown to ¥4.9 trillion. An even higher figure of ¥6.13 trillion greeted the end of the 1990 fiscal year.

Principal Subsidiaries

Nichimen America Inc. (U.S.A.); Granplex, Inc. (U.S.A.); Nichimen Canada Inc.; Nichimen de Mexico S.A. de C.V.; Nichimen do Brasil Ltda. (Brazil); Nichimen Co. (Argentina) S.A.; Nichimen Australia Limited; Nichimen Co. (New Zealand) Ltd.; Nichimen Co. (Hong Kong) Ltd.; Nichimen Co. (Iran) Ltd.; Nichimen Europe B.V. (Netherlands); Nichimen Ibérica, S.A. (Spain); Deutsche Nichimen G.m.b.H. (Germany); Nichimen Europe (France) S.A.; Nichimen Italia S.p.A. (Italy).