Middleman Role
EIZO KOBAYASHI
President and CEO
ITOCHU Corporation
Global trading powerhouse ITOCHU this year will celebrate the 150th anniversary of its founding with a strong balance sheet and excellent earnings. “Today we are global integrators, building upstream and downstream businesses around the world,” says President and CEO Eizo Kobayashi with obvious pride.
“Our founder imbued this company with a strong set of core values,” he goes on, “and they have served us well over the past century and a half.” The company traces its origins to the vibrant commercial culture of Omi Shonin or itinerant tradesmen from the region now known as Shiga in central Japan, not far from Kyoto.
“These traders espoused a philosophy known as sanpo yoshi. Mutual benefit for both buyer and seller is the basis for all commerce, but for our founder, Itoh Chubei, there was a third dimension as well—the notion that commerce should also benefit society.” This surprisingly modern idea continues to underpin the company’s values, and is taught to all new employees, regardless of age or nationality.
Fostering the right people to carry out its new global initiatives is a key objective for ITOCHU, as laid out in its Frontier+ 2008 midterm management plan. “We have set up Global HR Development Centers in Shanghai, Singapore, New York and London to take the lead in our new global human resource initiative,” Kobayashi says. “We must have the right people in place to execute this far-reaching global strategy.” The world will not wait, he adds. “Change is happening faster and more dramatically. The impact of such change is now global in scale, and it easily spills over from one industrial sector to others.”
“To prosper, we go where the growth is, and that
is in the emerging markets of the world.”
ITOCHU, like the other sogo shosha (general trading companies), has traditionally been the middleman in overseas trade, brokering a vast amount of goods and services through an array of channels that connect Japan with its global suppliers and markets, from bauxite to baking powder and steel coil to satellites. “But in today’s market, simply acting as the middleman can no longer provide the profits needed to sustain our long-term viability,” Kobayashi says. “Our goal is to become a ‘highly attractive global enterprise to all stakeholders,’ and I frequently travel abroad to explain to investors the strategies we have adopted in our Frontier+ 2008 plan.”
In the past decade, the company has undertaken a dramatic restructuring to strengthen its balance sheet and provide the cash flows for future growth. “Some investors tend to regard shosha as unwieldy conglomerates, and wonder what part of our diverse interests their investment will support. We are quite explicit about where we will focus our investments as the basis of future earnings. We use the acronym LINEs to describe them: Life & healthcare, Infrastructure, New technology & materials, Environment & new energy, and, at the end, synergy. Our share price will reflect our ability to execute these plans successfully,” Kobayashi says.
Why is ITOCHU focusing up to 70% of its new project investment on overseas markets? Demographics tell the story. “Japan’s population is about 120 million, but it may soon start to decline. Compare that to the rest of the world, which may soon reach a total of 9 billion, or 2.5 billion more than today. For us, the answer is simple—to prosper, we go where the growth is, and that is in the emerging markets of the world. Our business, which was once seen as a proxy for the Japanese economy, is now a proxy for the state of the global economy.”
