One of the leading four zaibatsu (enterprise group) in prewar Japan, Sumitomo sometimes advertises itself as the oldest company in the world, a plausible claim given its founding in the early seventeenth century. It came to prominence during the Tokugawa period (1600–1868) through its management of the Besshi copper mine, located on the island of Shikoku. By the early eighteenth century this mine was producing 20 percent of all copper mined in Japan. In addition to being used extensively for coinage in Japan, copper also became a major Japanese export to India and Europe and, increasingly from the late seventeenth century, to China, as the Chinese government shifted toward copper coinage.
Sumitomo's dependence on copper left it somewhat vulnerable during the period of the Meiji Restoration (1853–1880), for during the Tokugawa period it had chartered the Besshi mine from the bakufu (the Tokugawa government), which owned all the mines in the country. During the Restoration it had to hire the services of a special agent, Hirose Saihei (1828–1914), to persuade the new Meiji government to allow it to retain legal possession of the Besshi mine. Successful in the mission, Hirose stayed on as Sumitomo's main manager but handled the enterprise's affairs with a conservative strategy, not diversifying into other fields as its competitors Mitsui and Mitsubishi had, and not bidding on enterprises sold by the government in the 1880s. Nevertheless, by the mid-1890s Sumitomo had established its own bank, and not unlike Mitsubishi at the same time, embarked on a diversification strategy based on close linkages between its core copper business and emerging industrial enterprises. In doing so it was responding to a governmentally induced demand generated during a period of warfare (the Sino-Japanese War of 1894–1895 and the Russo-Japanese War of 1904–1905), subsidization, and military buildup. In 1901 it purchased a steel firm started by former engineers at the government-owned Yawata Steel Works. This provided the basis for Sumitomo's increasing concentration in heavy industry, combining steel and copper manufacturing. It supplied the navy with ship equipment and seamless steel pipe and the railways with rolling stock, wheels, and axles, especially after the nationalization of the railways in 1906. Moving increasingly into metal manufacturing and utilizing its Besshi mine for raw material, it also established a copper-manufacturing firm that was responding to emerging markets for copper wiring, including China. From roughly 1900 to the 1930s Sumitomo's investment strategy eventually made it the zaibatsu with the highest percentage of its manufacturing in heavy industry.
Sumitomo's industrial strategies were complemented by rapid expansion of the international operations of its bank, especially in the United States and China, where it was active not only in Shanghai but also in Hankow. The industrial functions its bank performed in China were related to financing the cotton trade, aiding its exports of copper products, and distributing communications equipment. As an important base for the future, in the 1930s Sumitomo indirectly became linked to the communications industry through involvement with Nippon Electric Company (NEC), Japan's leading manufacturer of telephone equipment and a subsidiary of the U.S. firm Western Electric. As a means of promoting domestic industry and reducing foreign links in strategic industries, the Japanese government, through controls administered by the finance ministry, forced foreign firms to reduce their holdings in their Japanese subsidiaries. As a result of this policy, during World War II Sumitomo firms eventually came to own virtually all the shares of NEC, though these were later disbursed during the U.S. occupation of Japan (1945–1952).
As with other leading zaibatsu, in the early stages of the occupation Sumitomo's holding company was abolished. As a zaibatsu Sumitomo's strategy had been distinctive in several ways. First, it had not participated in the purchasing of government assets in the 1880s when the Meiji government sold off many of its earlier investments. Second, it had never established a trading company. However, with many of its personnel out of work in the early stages of the occupation, Sumitomo finally set up its own trading firm, a strategy facilitated somewhat by the abolition of the Mitsui and Mitsubishi trading companies in July 1947. In later decades Sumitomo's trading firm did much to promote new technology. Also, through its earlier affiliation with Sumitomo, NEC became a key member in the post-war Sumitomo group. As the largest computer manufacturer in Japan, NEC lent a hi-tech aura to the Sumitomo group during the technology boom of the 1980s.
Morikawa Hidemasa. Zaibatsu: The Rise and Fall of Family Enterprise Groups in Japan. Tokyo: University of Tokyo Press, 1992.
NEC Corporation. NEC Corporation: The First 80 Years. Tokyo: 1984.