Nissho Iwai K.K.
Nissho Iwai K.K.
Incorporated: 1968 as Nissho Iwai Company, Ltd.
Sales: ¥9.484 trillion (US$52.8 billion)
Market Value: ¥200.2 billion (US$1.114 billion)
Stock Index: Osaka Tokyo Nagoya Hiroshima
Nissho Iwai was created in 1968 as the result of a merger between Iwai & Company and the Nissho Company. Both Iwai and Nissho had previously existed as independent companies primarily involved in trading and the production of ferrous metals.
Bunsuke Iwai began his life in business as an apprentice at a general store in Osaka called the Kagaya. In 1863, when he was 21, Iwai set up his own shop, specializing in popular imported foreign goods. The shop sold Western glass, oil products, paper, pottery, silk, woolens, and wine.
In 1868 the government of the Tokugawa shogunate was overthrown by forces loyal to the Meiji emperor. The new government sponsored a national modernization program to promote Japanese industry and export enterprises. As elements of the economy engaged in greater specialization, larger amounts of income became available to consumers, which increased their demand for foreign goods. Iwai’s business began to grow at a faster rate, and expanded both geographically and in terms of trading volume. In 1877 another young entrepreneur named Iwajiro Suzuki established a similar trading firm called Suzuki & Company.
Iwai & Company came very close to bankruptcy in 1879 when a bank it helped to create became financially insolvent. Within ten years, however, the company had established itself as one of the largest import traders in Osaka, employing over a dozen full-time agents in the port city of Kobe. As a wholesale, Iwai sold over one hundred varieties of goods to merchants across western Honshu and Kyushu.
Japan entered the second stage of its industrialization in the 1890’s when modern cotton spinning methods were introduced to Japan. Both Iwai and Suzuki imported materials for cotton production. Iwai was the larger of the two companies and had considerably more capital available for reinvestment. Iwai purchased several factories and converted them to produce goods which the company had been importing.
In 1897 Iwai became associated with a British trading firm called William Duff & Sons, through which Iwai imported a number of European goods. Iwai and Duff dealt directly with each other, eliminating the shokan, middlemen with privileged and established international trading networks. The shokan attempted to dissuade Iwai from formalizing its direct relationship with companies such as Duff, but failed.
When the Yawata Steel Works began production of iron and steel in 1901, Iwai was designated its primary trading agent. Iwai gained considerable experience in international trading, and by 1906 began to export a variety of Japanese goods (including matches, textiles, sundries, and jute sacks), primarily to India. The following year the company dispatched agents to India and the Netherlands East Indies (Indonesia) to promote sales of Iwai & Company products.
In 1912 Iwai was incorporated and shares of company stock were sold in order to raise capital. The export trade, however, was highly unprofitable and caused the company to grow at a slower rate than other larger trading companies. While Iwai’s trade volume amounted to five million yen in 1913, the largest trading company Mitsue registered ¥340 million.
Suzuki remained exclusively involved in the import trade and, as a result, experienced stronger growth. As one of the world’s largest sugar brokers, Suzuki maintained offices in London and became only the second Japanese company to be admitted to the Baltic Exchange. During this period Suzuki achieved a level of operation which placed it in a category with major trading companies. Suzuki engaged in trading iron and refined metal products, chemical and agricultural products, and entered heavy industry with the creation of a shipbuilding division.
Much of the credit for Suzuki’s rise to prominence is given to two of the company’s senior managers, Naokichi Kaneko and Seiichi Takahata. They coordinated foreign suppliers with markets in other countries and, in the process, established Suzuki as one of the world’s first international intermediary traders. For example, the company sold Chilean sulphur to Russia and purchased Ukrainian wheat for sale to commodity traders on the Baltic Exchange. Suzuki operated over 20 large ships, transporting cargoes between Europe, Asia, and the Americas.
At approximately the same time, international trading had become highly competitive for Iwai and was increasingly dominated by a few large conglomerates known as zaibatsu. In an effort to reduce the company’s exposure to international trading and realize the growing economic advantages of domestic production, Iwai created a number of operating subsidiaries to produce goods for import substitution. The company established Dai Nippon Celluloid in 1913, Nippon Steel Plate in 1914, and Tokuyama Soda in 1918. In addition, the company established branch offices in countries around the world to take over the business of agents who were preoccupied by the war.
As one of the victorious nations in World War I, Japan was allowed greater freedom to develop and police eastern Asia as its regional “sphere of influence.” Japanese companies were invited by the government to exploit natural resources and develop industries in Chosen (Korea), Taiwan, and Manchuria. The result was that Japan had begun a transformation into a mercantilist economy; it “exported” some of its labor-intensive industrial capacity to other countries and engaged in more active development of a modern heavy industrial sector.
The 1920’s was a decade of stagnation and slow economic growth. Japanese companies had a more difficult time competing in international markets because Japan’s wartime allies had rededicated their industrial energies to the development of their economies. The companies most seriously affected by the recession were C. Itoh, Iwai, and Suzuki. By 1928 conditions had become so poor for Suzuki that it was forced to reorganize. Many of its properties were taken over by Mitsui, and those that remained were used to form a new organization called the Nissho Company.
Iwai was threatened with bankruptcy in 1930, but recovered when demand for iron and steel increased. The company’s profits from foreign trading began to rise sharply in 1933. Two years later Iwai expanded its operations in Korea, China, and the nations of southeast Asia, and later in Latin America, Africa, Egypt, India, and Australia. Nissho opened offices in Los Angeles and New York, and in 1937, in Calcutta.
Japan’s domination of Asia grew under the militarist government. In 1937, as part of a plan to establish a regional economic order, Japan launched an invasion of China. The Japanese economy was mobilized to prepare for subsequent military conquests, which increased demand for a wide variety of products, principally steel. Despite the growth experienced during this period, Nissho and Iwai chose not to divide their resources into independent associated companies, as did Mitsui, Mitsubishi, and Sumitomo.
Japanese military adventurism erupted into general war in 1941. Although they were viewed as enemies of those in power, Nissho and Iwai remained principal contributors to the Japanese war effort. After initially making large territorial gains, the war turned against Japan. American bombers came within range of Japanese targets in 1944, and the following year Japan was defeated.
Like many other Japanese companies, both Nissho and Iwai were devastated by damaged facilities and the collapse of the economy. The policies laid down by the Allied occupation authority were particularly harsh for the large zaibatsu conglomerates. Mitsui, Mitsubishi, and Sumitomo, among others, were divided into hundreds of independent companies.
In order to prevent the occupation authority from imposing a potentially debilitating reorganization of its operations, Iwai offered to divest itself of seven manufacturing subsidiaries. The offer was accepted, and Iwai’s trading division was permitted to remain intact. With foreign markets no longer opened to Japanese companies, Iwai was forced to subsist on the slowly recovering domestic trade. The insurance and manufacturing divisions of Nissho were detached and re-established as independent companies.
When the zaibatsu were dissolved, numerous opportunities were created for Nissho and Iwai to expand their operations. In the postwar years, both companies reestablished and expanded their metals divisions and entered the field of machine manufacturing. Nissho created three associated companies in 1949, Nissho Chemical Industry, Nissho Fuel, and Nikkyo Shoji (Trading). The establishment of these companies marked the entry of Nissho into the field of petrochemicals, essential in the production of hundreds of industrial products.
The outbreak of the Korean War in June of 1950 drastically altered Japan’s role as a Western ally. The nation’s economy was redirected to promote industrial growth which would make Japan self-reliant and impervious to the expansion of communism. Iwai did not benefit from the war as greatly as other companies, but nevertheless did well enough to absorb heavy losses during two recessions in the early 1950’s. The growth of both Nissho and Iwai continued on a stable course for the remainder of the 1950’s, and was marked by the opening of several more offices throughout the world. The most notable of these was the Nissho American Corporation, opened in 1952.
Many of the prewar zaibatsu companies began to reorganize their fragmented organizations around banks which were formerly part of the zaibatsu groups. After the war, virtually all the zaibatsu organizations engaged in international trading and became known by a new name, sogo shosha, or “general trading companies.” While neither Nissho nor Iwai were ever considered zaibatsu, they were large enough by 1960 to be referred to as sogo shosha.
The sogo shosha played an important role in acquiring and developing new technologies, and then applying them to goods manufactured for export. Capital accumulated from exports was reinvested to produce newer and larger plants. Nissho and Iwai were mainly involved in steel marketing, the development of new machinery, and construction of new factories. They later branched out into other industries, establishing housing construction and realty ventures, as well as marketing subsidiaries for a variety of consumer products.
The largest trading companies in 1962 were C. Itoh, Mitsubishi, Mitsui, and Marubeni-Iida, each with sales several times larger than Iwai. Iwai was an importer of metal products which other Japanese companies had begun to produce in great volume. As Japan became a net exporter of these products, the gap between Iwai and the larger, more diversified sogo shosha expanded even further. Poor management and the overbearing influence of the Iwai family ruined the company’s last opportunities to recover. When banks and other lending institutions realized that Iwai’s condition was failing and irreversible, they withdrew their financial support.
By comparison, Nissho Trading was well managed and profitable. When it appeared that Iwai would fail, the Japanese government ordered Nissho (the seventh largest trading company in Japan) to merge with Iwai (the tenth largest). Although the merger was directed by the government, both organizations had much to gain. The new company, called Nissho Iwai, had a greatly strengthened intelligence gathering network, and its capitalization was approximately doubled. In addition, the new company had the benefit of a larger market with a rationalized management structure. As a result of the merger, Nissho Iwai became the fifth largest trading company in Japan.
Nissho Iwai maintained a close relationship with the Sanwa and Dai-Ichi Kangyo banking groups. The company also maintained its relationship with Kobe Steel, Ishikawajima-Harima Heavy Industries (formerly Harima Shipbuilding), and Teijin, a large chemical company. Nissho Iwai reduced its exposure to the domestic steel market and increased its export volume. Despite increased growth, Nissho Iwai was surpassed by Sumitomo Trading in 1972 and relegated to the position of the sixth largest trading company in Japan.
The company was implicated in an illegal payments scandal in 1979. Nissho Iwai acted as a sales agent of military aircraft for McDonnell Douglas, Boeing, and Grumman, and was accused of diverting sales commissions to Japanese politicians. One of the company’s executives committed suicide and three more were arrested, including the vice president of aircraft sales, Hachiroh Kaifu. Even the chairman of Nissho Iwai resigned. Despite the alleged improprieties, Nissho Iwai nearly doubled its sales volume in 1979. The company did, however, announce that it would withdraw from the aircraft marketing business.
The following year the company’s name was changed to the Nissho Iwai Corporation. A new emphasis was placed on acting as a intermediary sales agent between two foreign parties, and contributing to the development of industrial projects with financial participation and technological assistance.
Nissho Iwai remains the sixth largest Japanese sogo shosha. It is a principal importer of liquified natural gas and exporter of steel. As the growth of the Japanese economy has slowed in recent years, the growth of Nissho Iwai has been similarly affected. While the company’s intermediary trade has recently declined, many of its export divisions have remained financially healthy, particularly Nissho Electronics. Nissho Iwai has also recently acquired large shares of Nihon Sugar and Fuji Seito, a food products company.
Goto Drop Forging Co., Ltd.; Hamamatsu Kohan Kako K.K.; Komatsugawa Koki Co., Ltd.; NIK Metal Corp.; Nissho Iwai Steel Corp.; Nissho Iwai Steel Leasing Co., Ltd.; Oyodo Steel Co., Ltd.; Nihon Mining and Concentrating Co., Ltd.; Nissho Iwai Nonferrous Metals Corp.; Kokusai Kisen K.K.; Kokusai Marine K.K.; Nissho Electronics Corp.; Nissho Iwai Aerospace Co., Ltd,; Nissho Iwai Business Automation Corp.; Nissho Medi Science Co., Ltd.; World Aircraft Sales Corp.; Nissho Iwai-titled Apparel Co., Ltd.; Seni Kakoo Co., Ltd.; Chuo Woolen Mills, Ltd.; Sunrock Textile Co., Ltd.; Chuo Tobacco Co., Ltd.; Nike Japan Corp.; Nissho Iwai Sports Corp.; Beisei Tobacco Trading Co., Ltd.; Nissho Iwai-titles Glass Co., Ltd.; Propane & Oil Co., Ltd.; Sekiyu Corp.; Fuji Kako Co., Ltd.; Nippla Chemical Co., Ltd.; Nissho Iwai Polymers & Products Corp.; Sambow Resin Industries Co., Ltd.; Taiyo Kagaku Kogyo Co., Ltd.; Fuji Seito Co., Ltd.; Marusan Co., Ltd.; Nissho Iwai Foods Corp.; Nissho Iwai Delica Corp.; Nissho Iwai Foods Osaka Corp.; Osaka Suehiro Broiler Co., Ltd.; Shin-Meito Co., Ltd. Nissho Iwai also lists subsidiaries in the following countries: Argentina, Australia, Belgium, Brazil, Canada, France, Hong Kong, India, Iran, Italy, Kuwait, New Zealand, Nigeria, Panama, Spain, Sudan, Tanzania, Thailand, the United States, Venezuela, and West Germany.
The Soga Shosha: Japan’s Multinational Trading Companies by Alexander Young, Boulder, Colorado, Westview Press, 1979.