Sumitomo Corporation - Company Profile, Information, Business Description, History, Background Information on Sumitomo Corporation

2-2, Hitotsubashi 1-chome
Chiyoda-ku, Tokyo 100

History of Sumitomo Corporation

With interests in everything from chemicals to consumer goods, Sumitomo Corporation ranked among the oldest and largest surviving business ventures in the world. The firm was characterized as a keiretsu (banking conglomerate), a family of businesses linked through Japanese history and tradition, as well as cross-shareholdings and interlocking directorates. This scheme provided Sumitomo affiliates with common and well-known brand names, access to credit, and protection from hostile takeovers. The Sumitomo keiretsu was organized around the Sumitomo Bank, Ltd., which was the world's second-largest bank (in terms of profitability), and Sumitomo Corp., the second-largest diversified trading company in the world. The Sumitomo guruupu, or group, included such well-known affiliates as: Sumitomo Electric Industries Ltd. (Japan's largest manufacturer of electric wires and cables); NEC Corp. (one of the world's top manufacturers of semiconductors); Sumitomo Chemical Co. Ltd. (Japan's third-largest chemical manufacturer); and Sumitomo Rubber Industries, Ltd. (one of the world's largest tire manufacturers).

Sumitomo's business interests in the early 1990s focused on metals (about 38 percent of annual revenues), machinery (about 31 percent of annual revenues), and chemicals and fuels (about 15 percent of annual sales). Other interests extended to motor vehicles (under the Mazda and Nissan labels), media, real estate, insurance, textiles, and foodstuffs. Although such massive business concerns typically developed reputations for being impersonal, Sumitomo has historically shown concern for the well-being of employees and customers. In 1994, Sumitomo Corporation President Tomiichi Akiyama's letter to shareholders reemphasized that consideration: "Valuing our customers' trust above all, and with foresight, flexibility, and an entrepreneurial spirit, we will deal with the changing times." The Sumitomo companies adhered closely to basic principles of conduct in which harmony and patriotism were emphasized.

The "spiritual pillar" of the Sumitomo Corporation was Masatomo Sumitomo, the first head of the family and founder of the business. He was born just north of Kyoto in 1585 and became a Buddhist priest. At the age of 45 he opened a small medicine and book shop called the Fujiya. There he established a set of highly moralistic principles for conducting business which were passed down through subsequent generations to form the basis for the modern Sumitomo company charter.

Since Masatomo's marriage had produced no sons, his brother-in-law Riemon Soga was adopted into the family. Masatomo and Riemon were also related by a common lineage to the noble Heike family. When Masatomo died in 1652, Riemon Soga became head of the House of Sumitomo. As a young man, Riemon worked as an apprentice in a copper refinery. In 1590, at 18, he opened his own shop in Kyoto called the Izumiya, literally the "Fountainhead Shop." For the company's logo he adopted the igeta, the ancient character for "well frame." Twentieth-century annual reports noted that the character "symbolizes the fresh, sparkling water gushing from a fountainhead, which forms a mighty river and finally flows into the vast ocean." The igeta would become a metaphor for Sumitomo's own growth over the ensuing centuries.

Japanese refineries at this time lacked the technology to remove small, naturally occurring quantities of gold and silver from copper. These precious metals were sold to foreign traders as copper and were later extracted overseas at a great profit. Riemon Soga, however, learned about a refining procedure used by the foreigners (who were called nanban-jin, or "southern barbarians") which involved adding lead to molten copper and smelting with charcoal to remove silver from copper, and later lead from silver. This method, known as nanban-buki, made Riemon and the Izumiya very successful. Contrary to what may have been expected of an entrepreneur, Soga unselfishly instructed his competitors in the nanban-buki method.

When Riemon Soga died in 1636, the Izumiya passed to his second son, Chubei. His first son, Tomomochi, married Masatomo's daughter and was adopted by the Sumitomo family. He established a separate copper refinery and crafting shop which was also named Izumiya.

At the age of 16 Tomomochi moved his business from Kyoto to Osaka, which was recovering from damage incurred during a war between Tokugawa and Toyotomi armies. Tomomochi's competitors welcomed him to Osaka in a demonstration of their gratitude to his father. The Izumiya expanded quickly and later absorbed both the Fujiya and the original Izumiya operated by his brother. By the time of Tomomochi's death in 1662, the Izumiya in Osaka had become the center of the Japanese copper industry.

Tomomochi's fifth son, Tomonobu, became the third head of the Sumitomo family at the age of 15. In 1680 he gained permission from the Tokugawa Shogunate to rehabilitate the Yoshioka Copper Mine, which had been worked to exhaustion over a period of centuries. Shortly after Sumitomo commenced revitalization of the Yoshioka mine in 1684, it was discovered that Tomonobu's younger brother Tomosada had committed several serious errors in the management of the family brokerage house, which subsequently was forced to liquidate. This placed the entire family enterprise in jeopardy and the following year obliged Tomonobu, who was a partner in the brokerage operation, to resign all his posts at the age of only 38. He was succeeded as head of the family by his 15-year old son Tomoyoshi. The Izumiya endured several more years of hardship, but eventually recovered. In the meantime, restoration of the Yoshioka site continued.

In June of 1690 the manager of the Yoshioka mine, Jyuemon Tamuke, was approached by a man from the island of Shikoku who quite unexpectedly confided in Jyuemon that he had discovered a promising rock formation on the side of the mountain opposite the Tatsukawa Copper Mine, where he was employed as a miner. An expedition was ordered to investigate the area. The results immediately convinced the Sumitomo family to apply to the Shogunate for permission to mine the site, called Besshi. A permit was granted the following May, and digging commenced in December. Despite a fire in 1694 which claimed the lives of 133 people, Besshi was ambitiously developed and over the next one hundred years produced more copper than any other mine.

The Besshi and Tatsukawa mines continued to operate on both faces of the same mountain but were prevented from coordinating their operations because the Shogunate was opposed to giving one family control over such a large natural resource. In 1749 representatives from both mines convinced the government that the failing Tatsukawa mine could only remain viable if it was placed under Sumitomo management. By 1762 Tatsukawa was again faced with closure unless its operations were fully integrated with Besshi. That year the government permitted the Sumitomo family to purchase the mine.

During the next century the Sumitomo family remained involved in a variety of business activities. The primary trade, around which all other ventures revolved, was copper production. While the Sumitomos' wealth increased, no innovations were made in the smelting process and no real business acumen was displayed. The Besshi mine became a liability, dependent on government subsidies. In 1867 the family business was renamed Sumitomo Honten (head office) and designated as the central office for all Sumitomo activities.

During 1865 armed forces of the Choshu clan initiated a military campaign against the Tokugawa government, with whom the Sumitomo family had cultivated close ties. Despite its relationship with the Tokugawa Shogunate, the Besshi subsidies were suspended and the Sumitomo family was ordered to remit substantial amounts of money in war taxes to help fund government counteroffensives. Three years later the Choshu were joined by the Tosa and Satsuma clans, and together they succeeded in overthrowing the Shogunate and restoring the Meiji Emperor.

In the process, the Besshi mine was sealed by Tosa forces and the Sumitomo copper warehouses at Osaka were occupied by the Satsuma. Saihei Hirose, who had just been appointed general manager of the Besshi mine, met with the leader of the Tosa forces, Ganyemon Kawada (later president of the Bank of Japan). He persuaded Kawada to evacuate the Sumitomo properties after convincing him that the family unwillingly supported the Shogunate.

Still, the company was in very poor financial condition. The defeated warlords of the Shogunate defaulted on loans from the Sumitomo financial office, and the currencies it held greatly decreased in value. In addition, the Besshi mine had degenerated to the point where it was nearly unworkable. At this point there was strong pressure from within the family to sell the mine.

Hirose was determined to rehabilitate the Besshi mine. He secured new sources of food for the employees, constructed new housing, and even established a day care center. After he settled an ownership dispute with the government, Hirose proceeded with the modernization of the mine. Hirose managed to obtain numerous loans which required him to mortgage most of the family's property. In 1873 he hired a French engineer named Louis Larroque to prepare a study on Besshi with recommendations for its modernization. Hirose did not extend Larroque's two-year contract, but instead sent two of his own employees to Europe to study French methods of mining and metallurgy.

Hirose introduced a number of technological innovations to Japanese mining in 1880, including the use of dynamite and jackhammers. He purchased a steam-powered ship and train engine, and incorporated the substitution of coke for charcoal in the smelting process. He established his own sales and supply branches, including an export office. Large areas of woodland were purchased for lumber, and a machine manufacturing and repair shop was established. The productivity of the Besshi mine rose quickly; annual copper production increased from 420 tons in 1868 to over 1800 tons in 1888.

Saihei Hirose was regarded as the most important figure in Sumitomo's modern history. In addition to being given credit for saving the family enterprise, he successfully asserted the independence of the business from the government and contributed greatly to the development and growth of Osaka. He retired in 1894 and died 20 years later at the age of 86.

Hirose was replaced by his nephew, Teigo Iba, who continued to emphasize the modernization of Besshi, but also advocated the diversification of the Sumitomo family enterprise. Iba formalized the family banking operations in 1895 when he established the Sumitomo Bank.

Iba stepped down in 1904, proclaiming that only younger, more dynamic managers possessed the imagination and courage to implement new strategies and take risks. He was succeeded by Masaya Suzuki, who led the company until his death in 1922. During his tenure Sumitomo was reorganized as a limited partnership, and renamed Sumitomo So-Honten in 1921. Suzuki also re-emphasized Masatomo's founding precepts of moralistic and trustworthy conduct. He was remembered as a highly principled manager who expected nothing less than strict adherence to ethical business practices.

Between 1922 and 1930 two more men served briefly as the top executive, Kinkichi Nakata and Kanchiki Yukawa. During their leadership Sumitomo branched out into several more fields with the creation of new subsidiaries. By this time Sumitomo had grown to become one of Japan's largest industrial concerns. It was one of the country's few but powerful zaibatsu, or "money cliques," which emerged after the Meiji Restoration. Unlike the other zaibatsu, Mitsui, Mitsubishi, and Furukawa, Sumitomo did not become involved in the purchase of high-growth "model" industries which were established by the Meiji government and later turned over to private enterprise. Sumitomo's prominence had been gained purely on the virtues of its existing operations.

In 1930 Sumitomo appointed Masatune Ogura to serve as director general. He supervised the company's incorporation as Sumitomo Honsha (trading company), Ltd. in 1937. But his 11 years as chief executive were complicated by right-wing nationalists operating within the military. They gained influence in Japanese politics through intimidation and assassination and openly attacked the zaibatsu for their preoccupation with self-interest and "lack of sympathy" for the masses. However, of the zaibatsu, Sumitomo was spared most often from militarist terrorism. Whatever his political beliefs, Ogura was drafted into the militarist government in 1941 to serve as a cabinet minister.

Later that year Japan began a full-scale war of conquest in Asia aimed at establishing a regional economic order centered around Japan. For Sumitomo's new chairman, Shunnosuke Furuta, it was an extremely difficult period. He was required to make special efforts in order to keep the company's various divisions together; the unusual circumstances of war had forced Sumitomo's subsidiaries to adopt a more autonomous, presidential form of management. Additionally, the company and its 200,000 employees were not fully prepared for the wartime mobilization.

Japan's fortunes in World War II began to change during 1942. Within the year American bombers were within range of targets on the Japanese mainland. Since Sumitomo was a large industrial concern, and therefore essential to the Japanese military, its factories were exposed to frequent bombings. When the war ended in September of 1945, virtually all of Japan's industrial capability had been destroyed.

Japan was placed under the administration of a military occupation authority called SCAP, an acronym for the Supreme Commander of Allied Powers. SCAP imposed a variety of American-style commercial laws, including an anti-monopoly law, which mandated the complete dissolution of all zaibatsu. Despite strong criticism from some quarters, Shunnosuke Furuta complied with the edict and supervised the breakup of the Sumitomo Honsha, or parent company, into several fully independent firms, all of which were forbidden to use the igeta logo.

In the following months thousands of Japanese citizens, including Sumitomo employees who were posted overseas, returned to Japan. It was extremely demoralizing for those who had been fortunate enough to avoid areas of battle. Furuta worked very hard to ensure that all his employees could remain employed and healthy.

The Honsha was reorganized in November of 1945. Furuta made the difficult decision to set the company on a new course of business. Under its new name, the Nihon Kensetsu Sangyo, Ltd., was established as a general trading company, or sogo shosha.

In the years following World War II, particularly during the Korean War, the restrictive commercial laws were gradually relaxed. The former Sumitomo companies began to establish affiliations through the Sumitomo Bank and limited cross-ownership of stock. The igeta came back into use and a monthly meeting, the Hakusui-kai, or "White Water Club," was established so that the individual heads of the affiliated Sumitomo companies could coordinate business strategies. This did not, however, mark the reformation of the zaibatsu, which had a more disciplined, autocratic management style.

On June 1, 1952, the company officially changed its name to Sumitomo Shoji Kaisha, literally the "Sumitomo Commercial Affairs Company." It became the trading house for the various Sumitomo affiliated companies at a time when Japan was experiencing a period of phenomenal economic growth. As Japan grew in economic importance, Sumitomo Shoji established a number of foreign offices. Products handled by the company soon included iron and steel, non-ferrous metals, electrical and industrial equipment, chemicals, textiles, fuel, agricultural and marine products, and real estate. Sales transactions rose from $254 million in 1955 to $2.3 billion in 1965, then to over $26 billion in 1975, and reached nearly $74 billion by 1985.

The keiretsu organizational scheme emerged from this phenomenal growth, which was accompanied by an accumulation of debt. Majority holdings of virtually all affiliates were maintained within the keiretsu, thereby preventing hostile takeovers when share prices of a given member slipped dangerously low. If, for instance, Sumitomo Heavy Industries was in danger of being purchased by a competitor, the affiliated Sumitomo companies would collectively refuse to sell their controlling interest.

Sumitomo's fortunes, as well as the Japanese economy, declined in the late 1980s and early 1990s. Falling demand in Sumitomo's all-important metals and chemicals sectors combined with a "strong-yen recession" to effect steady revenue shortfalls--from ¥20 trillion in 1991 to ¥17 trillion in 1994. After four years of sector-leading profits, Sumitomo Bank fell to second place among the world's leaders. Its difficulties included bad loans to affiliate Itoman and to the former Soviet Union that culminated in the 1990 resignation of the bank's chairman.

In spite of such setbacks, the group was able to invest in several promising new ventures in the early 1990s. Media investments captured the most attention, especially a joint cable television venture with America's Tele-Communications, Inc. Other new enterprises included: a chain of Western-style drugstores called TomoD's; marketing of such American clothing brands as Eddie Bauer and Gotcha; creation of a digital communications system in Russia; filmmaking; and environmentally friendly products.

As Sumitomo approached the end of its fourth century in business, it maintained offices in 43 Japanese cities and 93 principal cities worldwide, as well as trading subsidiaries in 60 major cities globally. Its list of principal subsidiaries and associated companies numbered nearly 200.

Principal Subsidiaries: Asahi Breweries, Ltd.; NEC Corp.; Nippon Sheet Glass Co., Ltd.; Sumitomo Bank, Ltd.; Sumitomo Cement Co., Ltd.; Sumitomo Chemical Co., Ltd.; Sumitomo Coal Mining Co., Ltd.; Sumitomo Construction Co., Ltd.; Sumitomo Corp.; Sumitomo Electric Industries, Ltd.; Sumitomo Forestry Co., Ltd.; Sumitomo Heavy Industries, Ltd.; Sumitomo Life Insurance Co.; Sumitomo Light Metal Industries, Ltd.; Sumitomo Marine & Fire Insurance Co., Ltd.; Sumitomo Metal Industries, Ltd.; Sumitomo Metal Mining Co., Ltd.; Sumitomo Realty & Development Co., Ltd.; Sumitomo Rubber Industries, Ltd.; Sumitomo Trust & Banking Co., Ltd.; Sumitomo Warehouse Co., Ltd.

Additional Details

Further Reference

"The Mighty Keiretsu," Industry Week, January 20, 1992, pp. 52--54.Neff, Robert, "For Bankrupt Companies, Happiness Is a Warm Keiretsu," Business Week, October 26, 1992, pp. 48--49.Young, Alexander, The Soga Shosha: Japan's Multinational Trading Company, Boulder, Colorado: Westview Press, 1979.

User Contributions:

Comment about this article, ask questions, or add new information about this topic: