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Japan

Trading Companies

A major Japanese innovation in international trade has been the development of large integrated general trading companies. These corporations were first organized during the late nineteenth century as part of the effort to replace the foreign companies dominating Japan's trade and to provide foreign marketing services to Japanese firms unfamiliar with the outside world.

At first, trading companies acted as specialized wholesalers for Japanese manufacturers in domestic and foreign markets and bought raw materials and other inputs for manufacturing operations. Later, trading companies also served as financial intermediaries, absorbed foreign exchange risk for their customers, provided technical advice to small firms whose products might be exported, and engaged in direct investment overseas, often to secure stable sources of supply.

After World War II, the trading companies developed some thirdcountry trade, some of which did not involve Japanese products or firms. Such transactions included arranging for the sale of a United States chemical plant to the Soviet Union and for the importing of Romanian urea into Bangladesh. By 1988 such offshore trade accounted for almost 20 percent of total sales of the nine largest trading companies in Japan.

In the 1980s, several thousand trading companies existed in Japan. The top nine companies, however, accounted for the bulk of the transactions. In fiscal year (FY--see Glossary) 1991, C. Itoh led with sales of 20.0 trillion, followed by Sumitomo (18.8 trillion), Marubeni (18.2 trillion), Mitsui (16.2 trillion), and Mitsubishi (15.7 trillion). Others in the top nine were Nissho Iwai, Tomen, Nichimen, and Kanematsu-Gosho. These companies were very important in Japan's foreign trade. In 1988 they together handled 42 percent of exports and 74 percent of imports.

These companies were best at handling large-volume bulk products, such as raw materials. They faced some difficulties in the 1970s and 1980s with fluctuations in international raw material markets, but they continued to play a very important role in Japan's international trade. During the 1980s, they increasingly acted through direct investment.

Data as of January 1994