Marubeni Corporation

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Marubeni Corporation

4-2, Ohtemachi 1-chome
Chiyoda-ku
Tokyo 100-88
Japan
(03) 3282-2111
Fax: (03) 3282-7456
Web site:http://www.marubeni.co.jp

Public Company
Incorporated: 1949 as Marubeni Co., Ltd.
Employees: 9,533
Sales: ¥13.97 trillion (US $112.66 billion) (1997)
Stock Exchanges: Sapporo Niigata Tokyo Nagoya Kyoto
Osaka Hiroshima Fukuoka Dusseldorf Frankfurt
Ticker Symbol: MARUY

SICs: 6799 Investors, Not Elsewhere Classified

Marubeni Corporation is one of the largest of Japan’s general trading companies, known as sogo shosha. With a global network of almost 200 representative offices and more than 600 affiliated companies in 84 countries, Marubeni is involved in a wide variety of activities, including domestic, import, export, and offshore trade; investment activities; and product development operations—ranging from development of natural resources and raw materials to the marketing of finished products—in a variety of industries. Marubeni is a member of the Fuyo Group, an industrial organization consisting of about 150 companies, including Hitachi (electronics), Nissan (automobiles), Canon (cameras), Showa Denko (chemicals), Kubota (farm machinery), and Nippon Steel; the group is centered around Fuji Bank. The Fuyo Group (Fuyo is another way of referring to Mount Fuji) was created by several corporate leaders in the early 1960s and its member companies cooperate through joint ventures and other activities of mutual benefit.

Early History

In 1872 a young merchant named Chubei Itoh established a small store in Osaka to serve as an outlet for his commercial trading business. A symbol for the store was created that placed the word beni (Japanese for “red”) inside a circle, or maru. In 1883, as the Itoh trading company expanded, the Marubeni store was made its head office.

Over the next 20 years, C. Itoh & Company took over an increasing number of duties from foreign trading agents and established its own international trading network. The company experienced particularly strong growth after Japan asserted its military dominance in the region by defeating Chinese armies in 1895 and the Russian navy in 1905. At the outbreak of World War I, C. Itoh & Company took advantage of several opportunities in international trading, created when companies in Europe redirected their energies toward production of war material.

Japan allied itself with the Entente later in the war, and when Germany was defeated in 1919 Japan was awarded German colonies and commercial rights in Asia. Within two years, however, uncontrolled economic expansion caused a serious recession that threatened hundreds of companies with financial collapse. C. Itoh & Company was forced to reorganize in 1921. The company itself was renamed Marubeni Shonten, Ltd., and several divisions belonging to its larger subsidiary C. Itoh Trading became a new company called Daido Trading. Marubeni was mainly involved in textile trading, but expanded over the course of the decade to include a wider variety of industrial and consumer goods.

World War II Years

In the early 1930s a group of right-wing militarists within the Japanese armed forces initiated a rise to political power based on subversion and terrorism. As strong opponents of Communism, these militarists were natural allies of the Nazi and Fascist governments of Germany and Italy. After taking control of the government they declared a “quasi-war economy”in preparation for the Japanese conquest of East Asia and the western Pacific.

Large Japanese conglomerates known as zaibatsu (Mitsui, Mitsubishi, and Sumitomo) and companies such as Iwai, C. Itoh, and Marubeni were viewed by the militarists as self-interested institutions of laissez-faire capitalism. One widely recognized goal of the militarists was the nationalization of these companies. At the time, however, nationalization was not possible. These companies were responsible for virtually all of the weapons, machinery, and provisions needed to maintain the Japanese occupation of Korea, Manchuria, and China, and to conduct subsequent military campaigns.

In 1941, as part of an effort to increase the scale and raise the efficiency of Japanese industries, Marubeni was merged with C. Itoh Trading and Kishimoto & Company to form a larger firm called Sanko Kabushiki Kaisha. On December 1 of that year Japanese forces attacked British colonies in Asia, and on December 7 attacked American forces in the Philippines and Hawaii.

Initially, Sanko performed better than most Japanese companies in the war economy. Later in the war, however, Japanese forces failed to consolidate their gains and the war turned in favor of the United States. Additional demands were placed on the economy in general and companies such as Sanko in particular. In 1944, the year the Japanese mainland became exposed to American bombing raids, Sanko was merged forcibly with Daido Boeki and Kureha Spinning to form a new company called the Daiken Company. Chubei Itoh II, the son of Marubeni’s founder, was placed in charge of Daiken as its president.

The companies that formed Daiken, indeed even those that formed Sanko, were forced to perform under such extraordinary circumstances that none of them had an opportunity fully to integrate their operations with the other companies. Daiken existed more as an industrial group than a company.

Postwar Reconstruction

When the war ended in the late summer of 1945 most of the country’s industrial capacity had been destroyed. An Allied occupation authority under General Douglas MacArthur initiated a plan for reconstruction and the general reorganization of Japanese industry. Large conglomerates, particularly the zaibatsu, were divided into hundreds of independent companies in an effort to eliminate monopoly practices and encourage greater competition. In 1949 Daiken, which was not a zaibatsu, was redivided into Kureha Spinning, C. Itoh & Company, Marubeni, and a small manufacturer of nails called the Amagasaki Company. Marubeni was given authority to conduct international trade. Under the leadership of President Shinobu Ichikawa, the company utilized its strength in textiles to finance diversification into nontextile items such as food, metals, and machinery.

When the Korean War broke out in June 1950, Marubeni became one of thousands of Japanese companies whose services were urgently needed by the United Nations forces. Marubeni reacted quickly to new opportunities created by the war and, as a result, experienced faster growth than many other companies. The war also transformed Japan’s role as a postwar ally of the United States; it was decided that Japan should be developed into an industrial nation.

The Korean War ended in 1953, and many U.N. supply contracts with Japanese companies were terminated. This caused a serious recession in Japan and forced many companies, including Marubeni, to reorganize operations and management. Nonetheless, the company declared itself fully recovered from both World War II and the recession in 1955.

On February 18, 1955, Marubeni merged with lida & Company, an established name in Japanese business that operated several large department stores under the name Takashimaya. To emphasize its equality with lida, the Marubeni Company changed its name in September to Marubeni-Iida.

The Ministry for International Trade and Industry (MITI), the Japanese government’s coordinating body for the nation’s industries, selected Marubeni-Iida to handle trading activities for Yawata Iron & Steel and Fuji Iron & Steel (merged in 1970 to become Nippon Steel). As a result of this decision, Marubeni occupied a leading position in the field of silicon steel and iron sheets, which were being consumed in greater quantities by the growing Japanese appliance and automobile industries.

Marubeni-Iida’s newly established machinery trade group was awarded several contracts over a short period during the late 1950s, firmly establishing the company in the area of engineering. These contracts included a nuclear reactor for the Japan Atomic Energy Research Institute, a fleet of aircraft for the Japanese defense agency, and a number of factories that produced components for the electronic industry.

Marubeni-Iida entered the petrochemical industry in 1956 when it helped a leading chemical fertilizer and aluminum company called Showa Denko secure chemical production licenses from American companies. The company fostered relationships with other chemical companies and later became a leading importer of potassium and phosphate rock.

In the ten years from 1949 to 1959 Marubeni had reduced its concentration in textiles from 80 percent of sales to 50 percent. During the 1960s Marubeni-Iida acted as a supplier of materials for Japanese companies as well as a marketing agent for their products. In addition to textiles, metal products, and chemicals, Marubeni-Iida was active in trading light and heavy machinery and rubber products.

Reorganized Twice in the Late 1960s and Early 1970s

In 1965 Marubeni-Iida merged with the Totsu Company, a leading metal and steel trading firm that was closely associated with Nippon Steel. The merger substantially increased the company’s size and strengthened its position in metals. With the addition of Totsu’s 1,380 employees to Marubeni-Iida’s 8,000, the new company became a so go shosha, a large general trading firm like the former zaibatsu companies. To cope with its new position as one of Japan’s primary instruments for industrialization and growth, the new Marubeni-Iida initiated a general reorganization of its management and planning systems.

When the reorganization was executed in 1968, the company made greater efforts to develop raw material sources overseas, including petroleum products, coal, metal ores, industrial salt, foodstuffs, and lumber. During this time Marubeni-Iida improved its transportation and marketing networks and also improved upon the coordination of its various trading activities.

President Nixon’s decision to remove the U.S. dollar from the gold standard in August 1971 resulted in a worldwide disruption of currency values known as the “Nixon shock,” or in Japan, shokku. The value of the dollar dropped steeply, which made it more difficult for Japanese companies such as Marubeni-Iida to export products to the United States. The company’s operations were affected so adversely that it was again forced to reorganize. The company entered promising new lines of business, emphasized its more profitable existing operations, and divested itself of unprofitable slow-growth enterprises. The following January the company’s name was changed to the Marubeni Corporation.

In August 1973 Marubeni acquired Nanyo Bussan, a trading firm that handled copper, nickel, chrome, and other metals from the Philippines. The acquisition increased Marubeni’s share of the nation’s copper imports from 0.8 to seven percent, and refractories (hard to melt metals) from zero to 30 percent. The addition of Nanyo Bussan to Marubeni further diversified the company’s operations and strengthened its position in metals.

Rocked by Scandals in the 1970s and 1980s

In February 1976 it was reported that Marubeni illegally diverted commissions from the sale of Lockheed aircraft to officials of the Japanese government. Marubeni was accused of bribing officials for their support of Lockheed sales in Japan. Marubeni, Lockheed’s agent in Japan, initially denied any complicity in the scandal. Marubeni Chairman Hiro Hiyama, however, resigned in an effort to preserve the company’s integrity. The former vice-chairman of Lockheed, Carl Kotchian, testified that Hiyama advised him to bribe the Japanese officials, in accordance with “Japanese business practices.” Hiyama later denied Kotchian’s testimony. By July prosecutors arrested nearly 20 officials of Marubeni and All Nippon Airways, including Hiro Hiyama, who was accused of violating Japan’s foreign exchange control laws.

The Lockheed scandal came only three years after Marubeni was accused of profiteering in rice by hoarding supplies on the Japanese black market. Marubeni was seriously damaged by its unfavorable public image; more than 40 municipalities canceled contracts with Marubeni, and several international ventures were terminated.

Marubeni’s president, Taiichiro Matsuo, who had served in the government’s Ministry for International Trade and Industry, assumed the chairman’s responsibilities. After declaring that it no longer represented Lockheed, the company implemented a reform of its management structure to improve upon checks and balances at the executive level. In a move toward decentralization, many of the president’s administrative responsibilities were redistributed to a board of senior executives.

Marubeni recovered quickly from the Lockheed scandal. In 1977 the company’s trading volume was double the figure in 1973. As the third largest of Japan’s sogo shosha, Marubeni consolidated its international trading network and expanded its business in the United States, Australia, Brazil, Britain, West Germany, and Sweden. Marubeni also opened or expanded offices in the Soviet Union, the People’s Republic of China, the Middle East, and Africa. The company later came to operate offices in more than 100 foreign countries. Through the early 1980s Marubeni was involved in the development of coal mines in the United States and Australia, a copper mine in Papua New Guinea, and nonferrous metal mines in Australia and the Philippines.

When President Ferdinand Marcos of the Philippines was forced into exile in the United States in February 1986, he brought with him 2,300 pages of documents that were seized by the U.S. government. Officials of the U.S. Congress later revealed that some of these documents detailed illegal payments by Japanese companies to President Marcos and several of his friends and associates. Once again, Marubeni was identified as a major participant.

Called into question was the Japanese “aid-for-trade” policy, which promises aid to foreign countries on the condition that Japanese companies perform the work. Whereas the Lockheed scandal brought down the government of Kakuei Tanaka and involved several suicides, however, the Marcos scandal merely damaged Japanese-Philippine relations. For Marubeni it was an unwelcome revelation that further compromised its public image.

In addition, Diamond’s Japan Business Directory noted in 1986 that Marubeni suffered a ¥900 million appraisal loss due to the company’s close association with the financially troubled Sanko Steamship Company. Marubeni also had an outstanding “bad” claim of more than ¥4.3 billion.

1990s Brought Challenges and Opportunities

The bursting of the late 1980s Japanese economic bubble led to prolonged difficulties for Marubeni in the 1990s. Nearly all of the sogo shosha had diversified aggressively into financial investments during the speculative bubble years, in large part because their traditional activity of marginally profitable commodity trading had been in a deep decline for years, a development compounded by a trend toward Japanese companies handling their international operations themselves. In desperation the trading companies built up large stock portfolios and became hooked on the revenues they could gain through arbitrage (or zaiteku, as it is known in Japan). Once the bubble burst, the sogo shosha were left with huge portfolios whose worth had plummeted; all of the trading companies were forced eventually to liquidate much of their stock holdings. Marubeni’s troubles were even greater because the company had made large real estate purchases near its Osaka headquarters during the bubble. In 1995 the company wrote off ¥45 billion (US $542 million) from portfolio losses, declines in the value of real estate, and the liquidation and restructuring of both domestic and overseas subsidiaries. Further streamlining moves came in April 1996 when operations were reorganized into 21 divisions within eight business groups, and in April 1997 when the number of divisions was reduced to 19. In late 1997 Marubeni wrote off an additional ¥17.5 billion (US $143.8 million) in portfolio losses.

As Marubeni recovered from the burst bubble, and as it operated within the environment of a prolonged 1990s Japanese recession, it pursued a variety of new revenue streams. In March 1996 Marubeni spent about ¥27 billion (US $230 million) to purchase a 30 percent stake in the U.S.-based Sithe Energies, Inc., the seventh largest independent power producer in the world. In May 1996 Marubeni and Toho-Towa Co., Ltd., Japan’s largest film producer, announced that they would invest up to ¥13 billion (US $125 million) over a three-year period in films produced by Paramount Pictures, a subsidiary of Viacom. The consortium’s first release was The Relic, which opened in the United States in January 1997. In September 1997 Marubeni and France’s Cie. Genérale des Eaux S.A. announced they would invest ¥100 billion (US $828 million) in a joint venture aiming to develop drainage and sewer infrastructure projects in Asia.

Beginning in late 1996, Marubeni began to investigate ways that it could take advantage of the forthcoming Japanese “big bang,” the long-anticipated deregulation of the financial sector, a prime opportunity to secure new revenue sources. Targeting the consumer-financial industry, Marubeni launched its first fund, the MBI Fund, in July 1997 and planned eventually to launch one new fund each quarter. It was likely that the company eventually would acquire a Japanese brokerage house or create an alliance with a foreign brokerage house targeted at the Japanese market.

Marubeni had weathered fairly successfully the variety of challenges it had faced in the 1990s, but confronted additional serious problems thanks to the Asian financial crisis, which began in 1997. The company had numerous operations throughout Asia, including significant activities in the troubled nations of Indonesia and Thailand. The crisis was sure to affect Marubeni for some time to come, but the company had shown on more than one occasion in its history the ability to adapt to the fluctuations of the global economy.

Principal Subsidiaries

Marubeni America Corporation (U.S.A.); Marubeni Canada Ltd.; Marubeni Mexico S.A. de C.V.; Marubeni Brazil S.A.; Marubeni Argentina S.A.; Marubeni Venezuela C.A.; Marubeni U.K. P.L.C.; Marubeni Deutschland GmbH (Germany); Marubeni Benelux S.A. (Belgium); Marubeni France S.A.; Marubeni Italia S.p.A. (Italy); Marubeni Scandinavia AB (Sweden); Marubeni Nigeria Ltd.; Marubeni Bahrain E.C.; Marubeni Saudi Arabia Co., Ltd.; Marubeni Iran Co., Ltd.; Marubeni India Private Ltd.; Marubeni Singapore Pte. Ltd.; Dagangterus Sdn. Bhd. (Malaysia); Marubeni Thailand Co., Ltd.; P.T. Marubeni Indonesia; Marubeni Philippines Corporation; Marubeni China Co., Ltd.; Marubeni Hong Kong Ltd.;Marubeni Taiwan Co., Ltd.; Marubeni Korea Corporation; Marubeni Australia Ltd.; Marubeni New Zealand Ltd.; Marubeni Papua New Guinea Pty., Ltd.

Principal Divisions

Textile Group: Textile Material Division; Apparel Division. Metal Group: Iron & Steel Division; Iron & Steel Material Division; Nonferrous & Light Metals Division. Machinery Group—I: Power Systems Division; Information Business, Telecommunications & Electronics Division; Transportation & Development Machinery Division. Machinery Group—II: Plant & Ship Division; Industrial Machinery & Aerospace Division. Energy Group: Energy Division—I; Energy Division—II. Chemicals Group: Organic & Specialty Chemicals Division; Plastics & Inorganic Chemicals Division. Agri-Marine Products Group: Food Material (Grain & Sugar) Division; Food Division. Construction, Forest Products & General Merchandise Group: Housing Materials & General Merchandise Division; Pulp & Paper Division; Development & Construction Division.