the emergence of the prototype of enterprise group ......the wealth accumulated through the business...

Hitotsubashi University Repository

TitleThe Emergence of the Prototype of Enterprise Group

Capitalism -The Case of Mitsui-

Author(s) Yonekura, Seiichiro

CitationHitotsubashi journal of commerce and management,

20(1): 63-104

Issue Date 1985-12

Type Departmental Bulletin Paper

Text Version publisher

URL http://doi.org/10.15057/6359

Right

Hitotsubashi Journal of Commerce and Management 20 (1985) pp. 63-104. C The Hitotsubashi Academy

THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM

- THE CASE OF MITSUl -

SEIICHIRO YONEKURA*

Introduction

The strategy and structure of the Japanese enterprise groups have been a topic of in-

telest in many fields because of the rapid development and the strong performance of the

Japanese economy. In a recent global comparison of business development, Japanese enterprise group capitalisml has been analyzed.2 However, the historical development of

enterprise capitalism and especially the differences and similarities between the pre-war

zaibatsu and the postwar enterprise group (kigy6-shadan and keiretsu) have not yet been

clearly examined. Generally speaking, the similarities and differences between zaibatsu and kigy6-shadan

are listed as follows:3

Similarities :

a) Both of them have integrated a financial institution, such as a bank, a general

trading company (so~g5-sh5sha), and a manufacturing company into a group.

b) The large firm consists of many firms under an umbrelia (keiretsu).

c) Both of them have dominated and led the Japanese economy since the Meiji

Restoration (1 868).

Differences :

a) The capital control structures are different from each other. In zaibatsu, the

capital control structure was vertical (pyramid structure) and centralized by the

holding company. But in kigyd-shtidan, the interlocking directorate and share-

holding has been developed into a horizontal and decentralized control system

of management and capital. The control pattern over the subsidiaries and

* The author would like to thank professors A. D. Chandler, Jr., A. M. Craig, S. Ericson and B. Waka-bayashi for useful and constructive comments. Also special thanks to Rachel King for her great and patient

help. * The international comparison of business development in the United States, Britain, Germany and Japan

had been developed by Professor Alfred D. Chandler, Jr, and his colleagues at Harvard Business School, and

the Business History Seminar which focused on the international comparison during September 1981~85 has been held by them. The author studied many useful conceptual frameworks from Prof. Chandler and the seminar The concept of enterprise group capitalism is one of these things.

' The discussion paper, "Industrial Group Capitalism and the Japanese Enterprise System," was presented

by W. M. Fruin at the Business History Seminar at Harvard Business Schoo] in December 1984. ' H. Okumura, Nihon no Roku-Dai Kigyo-shudan (Six major Business Groups in Japan), Daiyamondo-

sha, 1976, pp. 48-50.

64' HITOTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT

Zaibatsu

Family

Holding Company

Kigy6-sh~dan

[December

Group Member

Direct Subsidiaries

Af f iliates

(Keiretsu)

Af f iliates

afiiiiates has been changed into a mutual control relationship.

b) The family monopoly domination over the capital in the prewar zaibatsu was thoroughly abolished by the Supreme Commander of the Allied Powers, and in the postwar kigy5-shtidan the interlocking directorate, interlocking share-

holding and the group presidents meetings control and coordinate the business

activities as a whole.

c) The financial power of a bank within a kigy6-shtidan is much stronger than in

a zaibatsu, because the bank has taken the place of the power of the zaibatsu

family or that of the holding company.

As we see from this list, the zaibatsu group and kigy5-shtidan have great similarities in their

business behavioral patterns. The most distinguishing difference between them is that in

zaibatsu the family domination depends upon the holding company system while in kigyd-

shtidan (enterprise group) the corporate mutual domination depends upon the interlocking

directorate and shareholding. That is the difference between the pyramidal structure and

the circular structure of the managelial and capital control as we see in the chart. This

difference is also very significant to understand the long term orientation of Japanese firms,

because the mutual interlocking shareholding system makes them to pursue long term strat-

egy without concerning short term interest of independent shareholders.4

In this paper, in order to understand when, how and why these similarities and differ-

ences emerged in the Japanese economy, the historical development of the managerial and

capital structure of the Mitsui zaibatsu (the largest and most dominant business group in

pre-war Japan) will be examined.

In the first chapter, the development of managerial structure will be examined. From

.this examination, we will understand that the interlocking directorate was developed to

complement the incompleted managerial structure for the expanding business group in the Mitsui zaibatsu. Chapter 11 will discuss the establishment of Mitsui Gomei as the hold-

ing company in 1909. This chapter will show that the centralized structure and family

dominance of capital control in the Mitsui zaibatsu were established by 1910.

Chapter lll will discuss the so~gd-sh5sha, one of the most important devices in business

group formation. Specifically, the development of Mitsui Bussan as so~gd-shosha, and the

' Ibid., p. 21.

1985] THJ3 EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM. THE CASE OF MITSUI 65

way how it organized industries and integrated the affiliated firms into business group will

be analyzed. Chapter IV will present the case of so~g6-sho~sha and Onoda Cement as example of the relationship between so~g5-shdsha and its affiliated firms. In these chapters,

we will see the emergence of prototype of keiretsu (affliated) and understand the important

role of so~g5-sh5sha for keiretsu formation. Finally, the relationship between the collapse

of Mitsui Gomei as the holding company system and the emergence of the interlocking

shareholding system in the Mitsui zaibatsu will be explained.

I. The Historical Development of the Managerial Structure

in the Mitsui Zaibatsu (1868-1909)

In contrast to American business, Japanese big business invested its resources in diver-

sification from the early stages of industrialization. This is because Japan had to concen-

trate its scarce capital and resources on several big businesses, in order to compete with

Western World. Zaibatsus were the typical result of such concentration and diversifica-

tion.5

The Mitsui zaibatsu diversified at the beginning of the Meiji era (1868-1912) and strug-

gled to establish an adequate managerial structure for its diversified business. In order

to understand the development of this managerial structure and its uniqueness (interlocking

directorate), it is necessary to look briefly at the business history of Mitsui and the evolution

of its management structure.

(1) The Pre-modern Era (1671~1868)

The business history of the Mitsui family began in 1672 when the founder Takatoshi

Mitsui started a traditional clothing wholesale and retail store (gofuku-ya). In 1683, using

the wealth accumulated through the business he started a money-exchange business (ryo~gae-

ya). He expanded these two businesses with an innovative retailing system6 and with the

financing of the Tokugawa government and local lords (daimy6). In 1691 he was designated

as authorized financier by the government. The Mitsui family grew to be one of the wealth-

iest merchant families in Japan before the Meiji Restoration (1868).

It should be noted that during the Tokugawa period the family developed a complicated

managerial structure for its expanded business. This was the dmotokata system-a kind

of centralized managing system.7 They also separated ownership from management by using banto (non-family and salaried manager) system and precise book-keeping meth-

5 H. Morikawa, "Management Structure and Control Devices for Diversified Zaibatsu Business," in K Nakagawa, ed., Strategy and Structure ofBig Business, University of Tokyo, 1978, p. 45.

6 S. Yasuoka, Zaibatsu Keiseishi no Kenkyu (The Study of Zaibatsu Formation), Mineruba Shobo, Kyoto, 1970, pp. 193-196. The founder Takatoshi Mitsui innovated the large scale wholesaling for the nation-wide retailers and the over-the-counter dealings with tag-price which had not yet been done on a large scale in the seventeenth century Japan. He also introduced a visual advertizement by using nishikie (a kind of

ukiyoe).

7 Ibid., pp. 197-214.

66

ods.8

HITOTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December

(2) The Great Reform of Minomura (1868-1880)

After the end of the Tokugawa period, Mitsui strove to renovate its family and business

structure in order to survive and adapt itself to the newly modernized society. First of all,

in order to overcome the financial crisis caused by the collapse of the Tokugawa economy,

the Mitsui family hired a highly talented manager, Rizaemon Minomura, as the bant6 from

outside of the Mitsui family and business. Anticipating the conditions of the time, he grad-

ually led Mitsui away from the Tokugawa government towards the new Meiji government. After the Meiji Restoration, he cooperated with the new government and its politicians

(especially Kaoru Inoue, one of the dominant figures in Meiji politics and business) by pro-

viding them with financial services.

Minomura modernized Mitsui's managerial structure. He tried to separate the Mitsui

house (the family) from the Mitsui-Gumi (the business) and to re-establish the dmotokata

as a kind of central corporate office. He did reorganize the money-changing business

(Mitsui-Gumi) in 1876 into Mitsui Bank (the first private bank in Japan with ~~~2 million

in capital) under the guidance of Inoue. He was appointed vice-president of the bank (the

top manager in the real sense, because the president was nominally chaired by the family

head). In establishing Mitsui Bank, he separated the traditional clothing retail store from

Mitsui's main business as an independent partnership (Mitsukoshi) according to Inoue's

advice, because at that time this retailing business had many unhealthy transactions with

old customers and the government officials. Immediately following Mitsui Bank's open-

ing, Minomura and Inoue combined Mitsui's domestic trading establishment (kokusan-kata)

with the Senshu Company into Mitsui Bussan. The Senshu Company had been established by Inoue with Takashi Masuda as the forerunner of the general trading company in 1874.

Although this company had earned large profits in the rice trade, it was dissolved when

Inoue returned to his cabinet post. When Mitsui Bussan was established, Minomura asked

Takashi Masuda, the former vice-president of the Senshu Company, to take over its manage-

ment. Beginning this new business, however, the Mitsui family did not risk establishing

Mitsui Bussan as the main family business, instead, started it as a separate partnership of

two young members of the family who had no right lo inherit the family fortune so that

the family could avoid taking any responsibility in case it went bankrupt. They did not

invest any money in this company either; they simply allowed Mitsui Bank to lend it up to

~50,000.9 At that time, nobody anticipated that this trading company would become the largest general trading company and would later lead to the prosperity of the Mitsui

zaibatsu.

In 1876, Minomura fell sick and died in the next year, Ieaving behind a modernized

banking house and unfinished reforms of the Mitsui family and business structure. After

' N. Nishikawa, "Edojidai ni okeru Mitsui Omotokata no Kaikei," S. Yonekawa and M. Hirata, ed., Kl~yo Katsudo ,10 Riron to Rekishi, Chikura-shobo. Tokyo, 1982, pp. 213-236. As A. D. Chandler, Jr. says, the advanced bookkeeping had contributed not only to the accounting in firms, but also to the control and coordination of firms (A. D. Chandler, Jr., Tlle Visible Ha,Id. Belknap Press, Cambridge, MA, 1977, pp. 109-120).

' Nihon Keieishi Kenkyujo ed., Kohon Mitsui Bussan Kabushikigais/1a Hyakunen Shi (A hundred year history of Mitsui Bussan), vo]. l, Nihon Keieishi Kenkyujo, Tokyo, 1978, pp. 55-56.

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP cAPrrAus,¥f, THE CASE OF MITSUI 67

his death his plan for the strict separation of the ownership and management was emas-culated by the family members who were frustrated by his plans. Mitsui Bank, having lost

Minomura's strong leadership, increased its bad debts to politicians and the family's con-

nections,ro

After the death of Minomura, Takashi Masuda became one of the men who led the Mitsui family and business. He managed Mitsui Bussan and expanded its international

trade, particularly its coal exports. After 1879 Mitsui Bussan made an exclusive sales

contract (itte 1lanbai-ken) with the government-owned Miike coal. Bussan's coal exports

rapidly grew from 2,700 tons in 1877 to 183,700 tons in 1886. In 1888 when the Meiji gov-

ernment announced its intention to sell the Miike mines to private enterprise, Masuda, who

realized their potential, persuaded the Mitsui family and bankers to enter the fierce com-

petitive bidding for the mines with Mitsubishi. It is a famous story that Mitsui bought

the mines for about ~4.5 million, after outbidding Mitsubishi by only ~i~2,300. At that

time, the industry participants said Masuda was crazy to pay ~~4,5 million for such a mine.

When Mitsui purchased the Miike mines, Masuda insisted on hiring the chief government engineer for the Miike mines, Takuma Dan. Masuda was sure that Dan, who had graduated

from the Mineralogy Department at the Massachusetts Institute of Technology, was the best engineer in Japan in those days. Masuda said that Dan was included in the ~~~4.5 mil-

lion.n In fact, Iater Dan also played a part in leading the Mitsui zaibatsu as chairman of

the central office. The Miike mines were jointly controlled by Bussan and the Bank.

While Masuda expanded Mitsui Bussan as a large general trading company, he hired

many talented college students from Sh5h5-Ko~shujo (later Tokyo Commerce College and

Hitotsubashi University),12 These accumulated human resources would later develop

and modernize the diversified Bussan's business.

(3) The Modernization and Industrialization of Nakamigawa

By 1890, increasing bad debts worsened Mitsui bank's financial state. Kaoru Inoue

forced the bank to hire Hikojiro Nakamigawa as vice-president to reform the barik's man-

agement and the Mitsui business combined in 1891. Nakamigawa (1857-1901), who was a nephew of Yukichi Fukuzawa, the famous leader of the bunmeikaika (the enlightenment

movement) in Meiji Japan, had managed the Sanyo Railway since 1888.13 In order to reform Mitsui's business, he began to establish a temporary headquarters which would

develop the basic reform policy and coordinate Mitsui business activities. In December

1891, he organized a kari-hyo~gikai (temporary council), which consisted of eight family

members, the seven chief executive officers of each business (including Masuda and Naka-

migawa), and Eiichi Shibusawa who was one of the most important business leaders in Meiji

Japan as well as a business advisor to Mitsui. Nakamigawa integrated the two separate partnerships, Mitsui Bussan and Mitsukoshi gofuku-ten, into the principal business of Mitsui.

While he was reforming Mitsui's management, he also employed many college students from

Keio College, the school his uncle Fukuzawa had founded. Due to such human resources

*" Yasuoka, op. cit., pp. 326-328.

** Nihon Keieishi Kenkyujo, op, cit., p. 128. *' Ibid., p. 60.

*3 T. Yui, "The personality and Career of Hikojiro Nakamigawa, 1887-1901," Busmess Hlstory Revrew Spring 1970. Harvard Business School, Boston. MA, pp. 39-61.

68 HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT

TABLE I . THE DISTRIBUTION OF THE PARTNERSHIP IN 1 893

[December

Bank Bussan Min ings Gof ukuten

Head House Hachirouemon Main House Motonosuke Main House Genuemon Main House Takayasu Main House Hachirojiro

Main House Saburosuke Branch House Fukutaro Branch House Morinosuke Branch House Takenosuke Branch House Younosuke Branch House Tokuemon

x x

X x

x X x

x

X X

x

Spouce: Shigeaki Yasuoka, Zaibatsu Keiseishi no Kenkyu, p.

TABLE 2.

403 .

THE INTERLOCKING DIRECTORATE IN MITSUl IN 1894

Mitsui Motokata Mitsui Bank

Chairman Managing-Conunitteeman Committeeman

Mitsui, Hachiroemon Nakai, Sanpei

Nishimura, Torashiro*

Masuda, Takashi* Nakamigawa, Hikojiro*

Pres i dent

Managing-Director Director

Mitsui, Takayasu

Nakamigawa, Hikojir0$ Nishimura, Torashiro*

Masuda, Takashi* Minomura, Risnke

Mitsui Bussan Mitsui Mining

President


Mitsui, Motonosuke Masuda, Takashi*

Mitsui, Yonosuke

Magoshi, Kyohei Ueda, Yasujiro

Nakamigawa, Hikojiro*

President


Mitsui, Saburosuke

Dan, Takuma Asada, Sauemon Mitsui, Hachirojiro

Masuda, Takashi* Nakamigawa, Hikojiro*

Source : Shigeaki Yasuoka, op, cit.

* means "interlocking."

, pp. 406~09.

accumulated by Masuda and Nakamigawa, people called Mitsui "strong in human resources," while calling Mitsubishi, "strong in organization."

After the promulgation of the Meiji Constitution in 1890, the government announced

that the Civil Law and the Corporation Law would be promulgated by 1893. Responding

to this announcement, Nakamigawa reorganized Mitsui Bank, Mitsui Bussan, Mitsui Mines

and Mitsui Gofuku-ten into G6mei-Gaisha (a legal unlimited partnership) in 1893 according

to the law,14 Therefore the partnership was carefully distributed among the eleven houses

of the family to prevent the whole family from going bankrupt (as Table I indicates).

At the same time the managing director system, with the nominal family president, was

introduce to Mitsui. The officers of motokata (administration offlce of the family) and

directors of the three big business (the Bank, Bussan and Mining) were interlocked, Naka-

migawa was Managing Director of the Bank as well as a Director at Bussall_a..nd_Mining,

Masuda was Managing Director of Bussan as well as a Director of the Bank and Mining

*' Yasuoka, op. cit., pp. 399~04. According to the Law, a limited corporation could not register its cor-porate name as a proper name, such as Mitsui.

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM, THE CASE OF MITSUI 69

as Table 2 shows. In this reorganization, however, an explicit central organization which

could control and coordinate the whole business combine was not established. Instead,

in order to control and coordinate each business which developed independently, Mitsui

interlocked the directors, especially Masuda and Nakamigawa.

Instead of a central control organization, Nakamigawa reorganized the Temporary Council into the do~zoku-kai (the Mitsui Family Council) consisting of the family members

and directors of each business. The do~zoku-kai became the highest decision-making or*'an,

concerned with finance, investment management and personnel matters. After settling the bad debts of the bank, Nakamigawa actively invested in various modern

industries, such as silk and cotton-spinning mills, electric manufacturing and mining (the

so-called Nakamigawa's industrialization policy at Mitsui). In 1894 he established the

Industrial and Real Estate divisions. The industrial division managed all the factories

which were merged or foreclosed by the Bank. The Real Estate Division controlled the non-commercial estates ~ossessed by the Mitsui family. To manage these expanding and

complex businesses, Nakamigawa established Mitsui sh6ten njikai (the Board of Directors

of the Mitsui companies) in 1896. Behind the creation of this Board in addition to do~zoku-

kai, there was a strong desire on the part of Nakamigawa to separate the Mitsui Family

from the business.15 (The organizational chart at Mitsui at that time is described in Figure

1 .)

Shdten Rljikai not only coordinated the overall business policy of the four companies

and two departments but also inspected and approved their individual policies. It can hardly be called the central corporate office, however, because the members of the board

were representatives of each company and there were too many conflicts among the oper-

FIGURE 1. THE ORGANIZATIONAL CHART OF THE MITSUI ZAIBATSU IN 1893

shinmachi Snk Spi~nmg hl,us

Source: Kazuo Shibagaki, Nihon Kinyu Shihon Bunseki, p. 210 and Shigeaki Yasuoka, op. cit., p. 465.

15 Ibid., p. 419.

莇■o庖伽（Family　Comcll）

Famlly　M‘耐bor昌目nd　Direoto周

∫伽刎肋伽三〃o他加他工Board　of　Dlr㏄to祀〕｛The　Admini5㍑窩ti、・e　Office　of　the　Family〕

B目nk 1ヨ㎜n Mml㎎Gofuku lndu…tria1庇P

Oji　P目p酊Co．Ltd．

Kanebo　Co甘on　M1lls

L 〉 Shibau胞Mmufacturmg

L N昭o｝a　T㎞ead　MH1冨

今 Mie　Thread　Mll1昌

Tomioka　Thr閉d　MIms

0昔aki　Co甘on　SPinm㎎Ml11昌

M舵b目shi　Co肚on　SPimi㎎Mnls

O』；｝…，一｝q；1L貝ni［n一刊｝M111o

70 HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December

ating companies to make a policy for the Mitsui business combine as a whole. Nakami-

gawa's industrialization policy, for example, confiicted with Bussan's commission business

policy because cotton-spinning mills, which were important customers for Bussan's inter-

national trade, became serious competitors of the Industrial Department's mills, Iike

Kanegafuchi Cotton Spinning Co. Ltd. (Kanebo). Nakamigawa's radical industrialization

policy conflicted especially with Masuda's commercial policy. Masuda was rather con-servative and preferred commission business to industrialization.

In 1898, the distributed partnership of the four businesses was changed. This change

reflected the enactment of a new Civil Law.16 The eleven family houses participated equally

in each partnership in the following investment ratios:

Sdry5ke (the family head house) : 23.0~ x 1=23.0~ Five Honke (the main houses) : l 1.5~~ x 5=57.5~

Five Renke (the related houses) : 3.9~ x 5= 19.5~

In 1900, the new Mitsui Family Charter (Mitsui-ke Kaken) was established. This Charter

was not only the private family charter but also the articles of association of the Mitsui

business combine. Until the end of World War II, this charter played an important role

as the constitution of Mitsui.17 According to the Charter, the name of shoten njikai (the

Board of Directors) was technically changed to el~y5ten ju~yakukai (the Board of Directors

of the Mitsui frms).

In November 1899 Nakamigawa suffered an attack of kidney disease and died in Oc-tober 1901, still struggling to industrialize the Mitsui business combine. In his last years

his radical industrialization and plans for the further separation of ownership and manage-

ment had conflicted even with the views of his mentor, Kaoru Inoue.18 In addition, because

of the unprofitability of the Industrial Division, his industrialization was criticized by Mitsui

business directors. The year following Nakamigawa's death, the kanribu (Supervisory Department) was established within the do~zokukai (Mitsui Family Council). The kanribu

was established to supervise the el~ydten ju~yakukai (the Board of Directors of the Mitsui

firms), because, as mentioned above, the directors of each operating firm who were interested

in the day-to-day business of their own ~rms could not function for the sake of the Mitsui

business combine as a whole.19 Another reason was the reaction of the family against

Nakamigawa's policy to separate ownership and management.ao The kanribu consisted of family members, some of whom were also presidents, and the managing directors of the

four firms-the Bank, Bussan, Mining, and Gofukuten. Then the Family could have a say at the meeting again. In addition, the silk and cotton mills, which Nakamigawa had

invested in, were sold very cheaply in 1901. Shibaura Manufacturing (it produced electric

machinery, generators and appliances) and Mitsui Gofukuten were also separated from the main business in 1904. The same year, in order to avoid a dual structure of kanribu

and eigydten ju~yakukai, the latter was abolished. Thus after the death of Nakamigawa,

the Mitsui family, Masuda and Inoue slowed the industrialization and became much more

16 Ibid., p. 430.

IT H. Matsumoto, Mitsui Zaibatsu no Kenkyu, Yoshikawa Kobunkan, Tokyo, 1979, p. 17. 13 Yui, op. cit., pp. 53-54.

l9 Morikawa, op. cit., pp. 53-55.

20 Yasuoka, op, cit., p. 508.

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM THE CASE OF MITSUI 71

conservative. Partly because of this change and slowness, Mitsubishi, which had aggres-

sively launched a heavy industrialization program, caught up with the Mitsui zaibatsu.21

So far, we examined the historical development of managerial structure in the Mitsui

zaibatsu. By turn of the century, the Mitsui zaibatsu was unable to establish the appro-

priate central corporate ofnce for its business combine. In order to complement this weak-

ness, it interlocked the directors, especially two key persons, Masuda and Nakamigawa.

This system is quite contrasting to the American large corporations' experience. In the

United States, Iarge corporations established the centralized managerial structure, in order

to control and coordinate a large volume of transaction, as well as cope with the anti-trust

movement. Thus a separate corporate office decided on a corporate strategy as a whole,

instead of day-to-day business operations.22

II. The Establishment Of Mitsui Gomei

(1) Mitsui Gomei as the Holding Company

Throughout the Sino-Japanese War (1894-1895) and after the Russo-Japanese War (190l~l905) the Japanese economy, as well as the Mitsui business combine, developed rapidly.

Table 3 shows how Mitsui's three big businesses expanded during this period.

This rapid growth made renovating the Mitsui's management structure inevitable, since these three firms had become too large and too risky to manage under an unlimited

partnership. In addition, the income tax on private partnership companies would be in-

creased by the government. In 1907, Saburosuke Mitsui, who was the department head

of the kanribu and Takashi Masuda, the managing director of the kanribu went to Europe

and the United States to investigate the managerial structure of wealthy western families.

They visited and received much advice from the Rothchilds, Gibbs, Krupps, Vanderbilts

and Morgans.23 After this investigation, the Mitsui family decided to incorporate their

business and to adopt the holding company system to control their incorporated firms,

TABLE 3. THE DEVELOP*MENT OF BIG THREE SUBSIDIARlrs (1897-1913)

Mitsui Bank Mitsui Bussan Mitsui Mjning

Year

1897

1901

1905

1909

1913

Total Total Deposit Index Loans Index (fl ,OOO) (Yl ,OOO) 25,064 100 29,048 1 1 6 49,388 197 86,162 344 92,233 368

20,405 100 18,469 91 35,232 173 72,827 357 85,618 420

Total Sales Index

(f I ,OOO)

53,729 100 74,298 1 3 8 1 80,894 3 3 7

223,742 416 402,041 748

Total Output Index (1 ,OOO tons)

633 100 l ,224 1 93 1,859 294 2,657 420 4,056 641

Source : Hiroshi Matsumoto. Mitsui Zaibatsu no Kenkyu, p. 20.

21 Ibid., p. 509.

22 A. D. Chandler, Jr., The Visible Hand, Belknap Press, Cambridge. MA, 1977, contrastingly describes

the historical development of the American management. 23 Mitsui Bunko, ed., Mitsui JI~yoshi Shiryohen, vol. 3, Mitsui Bunko, Tokyo, 1974, pp. 487-581 and Ma-

tsumoto, op, cit., pp. 29-34.

72 HITOTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December

because the holding company would not only save taxation on subsidiaries, but could also

maintain family domination over the ownership. By adopting the holding company system,

however, Masuda also put greater emphasis on the managerial advantage of this system.

He said that the Mitsui family, by recognizing its business into limited corporations, could

not only avoid unlimited risk and heavy income tax, but could also entrust professional

managing directors with the complicated management of each firm.24 In 1909 the Mitsui

Gomei was established as a holding company with ~~500 million capital. It was an un-

limited partnership of eleven families wherein family domination over capital was main-

tained. The proportions of this partnership for the eleven families was the same as before

(Head House 23.0~~, Five Main Houses 1 1.5~~ x 5, Five Branch Houses 3.9~~ x 5). The proportions of the right to vote and profit distribution were determined according to these

proportions of the partnership. They then reorganized Mitsui Bank and Mitsui Bussan into limited corporations, each one with ~20 million paid-in capital respectively. At the

same time, the Warehousing Department of the Bank was separated and incorporated Toshin

Storing Company Ltd. Two years later, Mitsui Mining was also incorporated with 20 million yen nominal capital (paid-up was ~~5 million at that time). Mitsui Gomei owned

and controlled 100~ of each firms' stocks and the presidents of each firm were dominated

by the family members. But the management of each firm was administered by a profes-sional manager with the managing director system. Moreover, the directors of the firms

were interlocked, as Table 4 shows. In particular, Takuma Dan participated in the man-

agement of every firm.

Again the president of Mitsui Gomei (the holding company), Hachiroemon Mitsui

FIGURE 2. THE ORGANIZATION OF THE MITSUl GOMEI IN 1914

A N K

~'

M1TSUI　GOMEl　PARTNERSHIP｛Holdl㎎Comp日町｝

THE　DlRECTORATECh肥f　D1爬〔tor：Takuma　D帥

KANSABu｛Department　of　Con肚ollers〕

DEpt．Mヨnager：Gen－u巴mon　MItsuiエControlkr　of　Gomei〕

Tak旧nosuke　Mi笛ui‘Controller　of　the　Bank〕

Youno言u止e　Mlt昌ul｛ControHer　of　the　Toshin〕

Tokuemon　M1帖u割｛Controller　ofGomEI｝Shogoro　Hat目noエDIr㏄tor　of　Tos11■n〕

Nag劃fumi　ArIga（Coun昌elor　of　Gom凹〕

Ken　H町a昌hl（Controller　of　Bu監咀n〕

Yujiro　Ono｛Co耐ro1ler　of　the　B田nk　and　To；hin〕

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SHIBAURA　MFG．0Jl　PAPER　MILL

ヨ B M T SAKAI　CELLuLOID、 U 1 0 0NODA　CEMENT｛ S N S

1 HOKKA工DO　COAL　MlNlNG（ S H

■ A N I 田nd　SmPPlNGN G N DENKl　KAG＾KU

V　＾　、1口〔＾ロー1〔u－　r（TT（、一　＾’1－　1　1KANEGAFucHI COTTON MILLE and etc.

24 Matsumoto, op, cit., pp. 62~3.

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM, THE CASE OF Mrrsul 73

and Takuma Dan (the managing director of Mitsui Mining) went to Europe and the United

States from April to November 1910, to study the administrative methods of holding com-

panies. In 1912, the kansabu (the department of controllers) was established within the holding

company to control and coordinate these incorporated companies. The kansabu consisted

mainly of the controllers of each incorporated company. The kansabu not only inspected

the accounts of subsidiaries, but also had the final say in appointments and dismissals, per-

formance evaluations of employees and the morals of the business.25

From January to July of 1914 a large bribery case was revealed involving the Navy

and some of Mitsui Bussan's officers who had allegedly bribed Navy officials to purchase

a warship from the British company. Consequently three executives from Bussan had to take responsibility and resign their posts. This so-called "Siemens Scandal"26 made it

necessary to clear the authority and responsibility of the holding company as the central

zaibatsu office. At the end of July, the njich6-sei (the Directorate) was established in the

Holding Company to clear the responsibility. This directorate system was established to

TABLE 4. INTERLOCKED EXEcurIVES IN THE MITSUI ZAIBATSU IN 1914

Mitsui Gomei Mitsui Bank

President

Execut i ve

Counselor Controller

Councillor

Mitsui, Hachiroemon Mitsui, Hachirojiro*

Mitsui, Saburosuke*

Mitsui, Takayasu*

Masuda, Takashi Mitsui, Gen

Mitsui, Tokuemon*

Dan, Takuma* Asabuki, Eiji*

Ariga, Nagafumi

President

Managing Director

Director

Controller

Mitsui, Takayasu*

Flayakawa, Senkichiro*

lkeda, Shigeaki

Yoneyarna, Umekichi Mitsui, Morinosuke

Dan, Takuma* lida, Yoshikazu*

Hayashi, Ken Mitsui Takenosuke Asabuki, Eiji*

Ono, Yujiro

Mitsui Bussan Mitsui Mining

President

Managing Director

Director

Controller

Mitsui, Hachirojiro*

lida Yoshikazu*

Watanabe, Senjiro

lwahara, Kenzo Yamamoto, Jotaro Fukui, Kikujiro

Mitsui, Younosuke Komuro, Sankichi ffayakawa, Senkichiro*

Asabuki, Eiji

Mitsui, Tokuemon*

Dan, Takuna*

President

Managing Director

Controller

Mitsui, Saburosuke*

Yamada, Naoya Okamoto, Kan-ichi Mitsui, Motonosuke

Dan, Takuma* lida, Yoshikazu*

Mitsui, Gen-emon*

Hatano, Shougoro

Source : Hiroshi Matsumoto, op. cit.

* means "interlocking."

, pp. 4(~48 & pp. 58-59.

:5 Ibid., p. 104. 26 The reason why this bribery case was called the "Siemenns Bribery" was that it happened to be revealed

as a result of a bribery investigation of the Siemenns Company in Germany (Matsumoto, Ibid. , p. 67).

74 HITOTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December

prevent family members from being involved in such incidents.27 Takuma Dan rather than Masuda was designated chairman. By 1914, then, the holding company system of the Mitsui business combine was completed. We can say that at the time when Mitsui Gomei was established, the vertical and centralized control of the capital and the horizontal

interlocking directorate were fully integrated in the Mitsui zaibatsu.

Although the basic separation of ownership from management and the managerial hierarchies of each subsidiary were completed by this time, the presidents of the three big

firms were dominated by family members and the family had a strong say about the pro-

motion of the very top managers and the large investments until the end of World War II.

In the Mitsui zaibatsu it is difficult to say that such a complete separation was achieved

when Gomei was established. The management structure of the Mitsui business combine,

therefore, was a mixed type between "owner-management" such as Mitsubishi and the "reign but not rule" type such as Sumitom0.28 We can say, then, that there was a coex-

istence of family management and salaried managers in the Mitsui zaibatsu. The organ-

izational chart of the Mitsui zaibatsu at this time is shown in Figure 2 and the interlocking

directors are listed in Table 4.

(2) The Financial Structure of Mitsui Gomei

In the previous section, we analyzed the transition of the managing

TABLE 5. THE TOTAL ASSETS OF MITSUI GOMEI IN 1911

structure of the

Items Amount (1) Securities 51,182,390 (72.65~~)

Mitsui Bank Co. Ltd.

Mitsui Bussan Co. Ltd.

Mitsui Mining Co. Ltd.

Toshin Storing Company Co. Shibaura Electronic Mfg. Co.

Oji Paper Mill Co, Ltd.

Onoda Cement Co. Ltd. Sakai Celluloid Co. Ltd.

The Bank of Japan Others

Ltd.

Ltd.

20,OC0,000

20,000,000

5,000,000

7CO,OOO

l,171,000

2,079,140

1 68,750

l,307,950

652,950

102,500

(28.4~O (28.4~~)

(7. I ~)

(1 .O~)

(1 .7~)

(2.9~~ (0.2~~)

(1.9~~)

(0.9 ~;)

(O.1~)

(2) Real Estate 2,310,849 (3.3~~)

(3) Buildings l,437,879 (2.0~)

(4) Others 15,562,742 (22.1~)

loan for the Mitsui Mining

loan for the Oji Paper Mills

deposit in the Mitsui Bank

others

9,569, I lO

3,000,000

2,318,371

675,261

(13.6~) (4*3~~)

(3･3~~)

(1.0~;)

Total 70,493,850 (100.0~~)

Source: Hiroshi Matsumoto Mitsui Zaibatsu no Kenkyu, pp. 59-60.

27 Because there was no inevitable necessity to establish the njicho-sei in addition to the Mitsui Family Council which had represented the Mitsui zaibatsu. In other words, by this time the Mitsui zaibatsu needed

the system which would represent the Mitsui zaibatsu as a whole instead of the family members. as H. Morikawa, Nihon Keieishi, Nihon Keizai Shimbunsha, Tokyo, 1981, pp, 137-38.

57TH］…EMl…RGENCE　OF　THE　PROTOTY朋0正ENτ1…RPR1SE　GROUP　CAP1TALlSM．THE　C＾SE　OP　MlTSUI1985

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76

1985] THE EMERGENCE OF THE PROTOTYPE or ENTERPRISE GROUP CAPITALISM, THE CASE OF MITSUI 77

Mitsui zaibatsu up to the establishment of Mitsui Gomei (the Holding Company) in 1909.

Now in order to understand the relationship between ownership and control of the Mitsui

business combine, we will look at the capital structure of Mitsui Gomei.

(a) T/1e Capital Structure of Mitsui Gomei29: Table 5 shows the total assets of Mitsui

Gomei in 1911. As this table indicates, the proportion of shares held in the big three

businesses (the Bank, Bussan and the Mining) represented 64,0~ of the total assets and

if we include the loan of Gomei for the mining and the deposit in the bank, 80,1~~ of the

total assets were related to the big three businesses. Accompanying the rapid growth in

the Japanese economy during World War I (1914L1918), the Mitsui zaibatsu also expanded

its businesses. By 1920 the assets of Mitsui Gomei grew four times as shown in Table 6.

From Table 6, we see that between 1910 and 1916 the total capital increased from

about ~~~:68 million to ~~:88.7 million. By the end of 1916, the paid-in capital of Gomei in-

creased from ~~~50 to ~~60 million. And during the economic boom caused by World War

I, the total capital increased at an amazing rate. By 1919, it surpassed ~~200 million and

Mitsui Gomei increased its paid-in capital to to ~200 million in February 1920. It must be

noted that these paid-in capital increases were mainly covered by internal reserves. Since

the debt of ~~20 million in 1920 was borrowed from the Mitsui Bank to cover the large capital

increase, it can hardly be said that it was an external debt. This point will be closely anal-

yzed later.

This amazing expansion was made possible by several factors. Table 7 shows the asset

structure of Mitsui Gomei. The main increase in assets was in securities. Especially after

the economic boom of World War I, 90~ of the assets came to account for securities. As

Table 8 shows, more than 80~ of these securities were those of chokkei (the direct sub-

sidiaries-the Bank, Bussan, the Mining, and Toshin Storehouse); the rest were those of

bdkei (affiliates-Kanebo cotton mill, Shibaura Manufacturlng, Sakai Celluloid, Oji Paper,

Onoda Cement and so on-see Table 5). It would be useful, therefore, to analyze the ex-

pansion of the four direct subsidiaries (chokkei) to understand the main capital structure

of Mitsui Gomei.

During the economic boom of World War I the four direct subsidiaries expanded busi-

ness rapidly. In February 1918, Bussan decided to increase its' paid-in capital from ~~20

million to ~~IOO million. The additional ~~~80 million was paid in two installments by Mitsui

Gomei; ~~~50 million in 1918 and ~30 million in 1920. Toshin Storehouse also increased its paid-in capital from ~~'_ to ~~5 million in 1918. This was paid in by Gomei at once.

Mitsui Mining also increased its capital from ~~20 to ~~50 million. This additional

~~30 million also was paid in by Gomei separately; ~~l0.5 million in 1918 and ~~19.5 million

in 1920. Again in 1920, Mining decided to increase its capital to ~~IOO million. Gomei

paid in ~~12.5 million (25~ of the increased capital) at that time, but the rest was not paid

in until 1934.

In July 1919, Mitsui Bank also decided to increase its paid-up capital from ~~20 to ~IOO

million. At that time ~~40 million (50~~ of the increase) was paid in, but ~i~5 million of this

~~40 million was opened to public subscription. __ Ihis point is discussed further below.

To cover the capital increases of its direct subsidiaries, Gornei needed about ~~l50 mil-

lion. In~order to respond to these increases, Gomei had to increase its capital to ~~200

'" The description and data of this section owe to Matsumoto, op, cit., pp. 162-66.

78

TABLE8．

HITOTSUEASH1』OURNAL　OF　COMMERCl…AND　MANAGEMENT

TH正PR0p0RTl0N0F　M1TsUl　G0ME1’s　SEcURmEs　HELD　BY1TsSUBsIDIARlEs（Cんo肋3’）AND　AFHLIATEs（月o加f）

［D㏄ember

Teml Ye皿（a）Chokkei　　Subsidia工ies

（a）／（c）　　　　　（b）Bokei

　　　　　　　　　　　　AKliates

（b）ノ（c）（c）Tota1

　1

　2

　3

　4

　5

　6

　7

　8

　9

10

11

12

13

14

15

16

17

18

19

2021

22

23

24

25

26

27

1910．1

　　　．7

1911．1

　　　．7

1912．1

　　　．7

1913．1

　　　．7

1914．1

　　　．7

1915．1

　　　．7

1916．1

　　　．7

1917．1

　　　．7

1918．1

　　　．7

1919，1

　　　．7

1920．1

　　　．7

1921．1

　　　．7

1922．1

　　　．8

1923，2

40，700，㎜

柵，700，㎜

40，700，㎜

　40，700．000

　45，700，OO0

45，700，㎜

　45，700．000

　45，700，OO0

　45，700，OO0

55，700，㎜

　55，700，OO0

　55，700，OO0

　55，700，O00

　55，700，㎝

　55，700，OO0

　60，700，OOO

11O，700，O00

124，200，O00

124，200，OO0

125，200，㎝

210，778，OO0

210，781．250

210，936．250

210，937，OO0

210，977．000

210，982．250

213，332，250

　％86，9

86，0

86，2

85，6

86，9

85，6

85，5

84，7

82，4

84，7

83，0

81，7

80，8

78，3

79，4

79，7

87，0

85，5

85，2

82，5

87，5

85，5

84，7

84，5

84，5

84，6

84，4

　6，161．230

　6，626．830

　6，519．080

　6，841．930

　6，898．180

　7，715．350

　7，756．600

　8，244．700

　9，768．850

10，093．637

11，412．937

12，498．112

13，220．725

15，452．035

14，419．395

15，425．890

16，495．145

20，996．352

21，641．552

26，548．057

30，085．195

35，867．180

38，2工1，一45

38，547．995

38，654．995

38，495．995

39，395，682

　％13，1

14，0

13，8

14，4

13．1

14，4

14，5

15，3

17，6

15，3

17．O

18，3

19，2

21，7

20，7

20，3

13，0

14，5

14，8

17，5

12，5

14，5

15，3

15，5

15，5

15，4

15．6

　46，861．230

　47，326．830

　47，219．080

　47，541．930

　52，598．180

　53，415．350

　53，456．600

　53，944．700

　55，468．850

　65，793．637

　67，112．937

　68，198．112

　68，920．725

　71，152．035

　70，119．385

　76，125．890

127，195，145

工45，196．352

145，841．552

151，748．057

240，863．195

246，648．430

249，147．395

249，484．995

249，631．995

249，478．245

252，727，932

80〃Cεj Hiroshi　Matsumoto，op．c〃．，p■38．

　　　　　　TABLE9．　CApITAL　INcR旧AsEs　AND　THB　ExTRA　DIvIDENDs（￥＝million　yen）

Datc Subsidiary Amount　of　　　　　DateCapitalIncreases　Paid　by

Mitsui　Gomei

Subsidia1＝y Amou皿t　of1三xtra　Dividcnd

to　Gomei

Feb．1918F6b．1918Ju1．1918

Jul，1919Jan1920Jan1920Jan1920

BussanToshinMiningBankBussanMining

Mi皿ing

　　　　　　　　　　　　　Oct．1917

〒50

予3　　　　　　May1918￥10．5　　　　　　　　Jun，　1919

Y23．578　　　　　0ct，1919

予30　　　　　　Nov．1919予19．5

予12，5

BuSSan

Mini口g

BankBussanMining

￥50

〒1O．5

〒11

予30

予12

Total 〒149，078

　　（a）

Tota1　（b）

￥113．5

b／a％三76．1％

80〃Cε’ Hi正oshi　Matsumoto，oρ．‘〃、，p． 132．

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRJSE GRour CAPITALISM. THE CASE OF MITSUI 79

million in 1920, as stated above. Table 9 shows the way Gomei increased its capital as well as that of its subsidiaries. As the right side of Table 9 indicates, before the capital

increase of each subsidiaries, Gomei received extra dividends from each subsidiary and then

paid the increased capital. By the end of 1919, the extra dividends from the three big sub-

sidiaries amounted to ~~113.5 million; this figure amounted to 76.1~ of what Gomei paid

in to the subsidiaries. In this way, Gomei concentrated the profits of the subsidiaries and

then reinvested in each. Thus Gomei tried to control the capital increases of both itself

and its subsidiaries.

Gomei, however, had to change the basic principle of its capital procurement; that

was the exclusivity of ownership. In 1919, when Mitsui Bank decided to increase its capital

from ~~20 to ~i~IOO million, it offered ~~15 million for public subscription. As Table 9

shows, the capital increases of the subsidiaries were much more than the extra dividends

that Gomei had received. In 1918, for example, Mitsui Mining increased its capital from

~20 million to ~E50 million, and in 1920 it was increased to ~~~lOO million. In January 1920

Gomei had to pay ~i~19.5 for the second payment of the first increase and ~l2.5 million

for the first payment of the second increase at the same time. These payments amounted

to f32 million and were ~~20 million more than the ~!~l2 million in extra dividends from

Mining. That is why Gomei borrowed the necessary ~:~20 million from Mitsui Bank, as

mentioned above. Furthermore, at that time the capital demand of these subsidiaries was

more than the Mitsui Gomei could afford. In order to keep the family domination over the ownership of Gomei and its other subsidiaries, Gomei decided to offer only 15~~ of

the Bank's stocks to the public, then it borrowed the money from the Bank. But ~20 million of the increased capital of the Mining was to be deposited in Mitsui Bank. So that,

this increase was just a paperwork. It must be remembered, however, that the rapid expan-

sion of the subsidiaries during the economic boom had begun to make it necessary to introduce external capital even they were very small portions to the Mitsui zaibatsu.

(b) The Revenue Structure of Mitsui Gomei.' As we see in Table 7, over 90~~ of Mitsui

Gomei's total assets were in secunities. Therefore the main revenues of Gomei were div-

idends from those securities. In the first half of fiscal year 1922; 86.8~~ (about ~~~I0.9

million) of total revenues were from dividends, 5.8~ from interest on bonds, 3.6~~ from

TABLE lO. THE CAPITAL PARTICIPATION RATIOS OF MITSUl GOMEI

IN THE Bdkei FIRMS (February 1923)

~~

Shibaura Mfg. Co. Ltd.

Sakai Celluloid Co. Ltd.

Oji Paper Co. Ltd.

Onoda Cement Co. Ltd. Hokkaido Coal Mining and Shipping

Co. Ltd.

Denki Kakaku Co. Ltd. (Electronics & Chemical)

Kanegafuchi Boseki (Kane-Bo) Co. Ltd.

57.24~~

27.70~~

31.59~~

12.20~~

22.83~

8.75~~

7.50~~

5,008,675

2,770,000

9,872,500

637,500

8,619,937

675,000

1,183,950

Source: Hiroshi Matsumoto, op, cit., pp. 142-153.

note : * in June 1919.


real estate, and 1.9~ from miscellaneous interests.30 73.9~ (about ~~8 million) of Gomei's

total dividend revenue was from the four chokkei businesses: ~3 million from Bussan, ~2.2

million from Mining, ~~2.6 million from the Bank and ~~~2 million from the Toshin Store-

house. The remaining 26.1~~ of total dividend revenues was from the hokei (affiliates).31

In Table 10 the capital participation ratios of Mitsui Gomei in these bokei firms are

listed. Of these affiliate firms, Shibaura Manufacturing, Sakai Celluloid (established in

1908 by Mitsui), and Oji Paper (established in 1873) had developed using Mitsui's capital and

managerial resources. Sakai Celluloid, Onoda Cement, Oji Paper, Kanebo Cotton mills

and Hokkaido Coal Mining and Shipping had close relations with Bussan in procurement of raw materials and marketing of their products. Producing generators, motors and pumps

for Mitsui Mining, Shibaura Manufacturing also manufactured special machines for Oji Paper,

Onoda Cement, Denki Kagaku (Electronics and Chemical) Company and Kanebo Cotton Mills. Furthermore, Mitsui Bank provided both long and short term financing to these affiliate firms. With Mitsui Gomei as the holding company, the four direct subsidiaries

(chokkei) and affiliate subsidiaries (bdkei) were closely and organically interrelated by cap-

ital, financing, managerial resources, procurement of raw materials and machinery, as well

as the distribution of products. In next chapter, we will see the concrete example of these

organic integrations between the Mitsui zaibatsu and affiliates through Mitsui Bussan.

III. Mitsui Bussan as S6g6-sh6sha

Mitsui Bussan was the pioneer and forerunner of so~g5-shosha. The meaning of so~g6-

sh5slla is much more than what the English translation "general trading company" reveals.32

Particularly, for the enterprise group formation, Mitsui Bussan as so~g6-shdsha played an im-

portant role not only as a profitable trading company, but also as the integrator of the whole

Mitsui business combine. In this chapter, we will analyze how and why Mitsui Bussan

se lbid., pp. 161~165.

81 Ibid., p. 167.

*' According to Y. Togai's, Mitsui Bussan Gaisha no Keieishi-teki Kenkyu, Tokyo Keizai Shimposha, Tokyo, 1974, pp. 1 1-13, the general characterics of so~g(~-sho~sha are as follows :

1) it handles various and large scale transactions domestically, internationally, and triangu]arly through

its many branches all over the world; 2) it plays the role of the total organizer for industries as it supplies machinery, techlonogy, raw materials

and markets for the products of the industries ; 3) in order to get an exclusive sales contract with producers, it finances and capital-participates with pro-

ducers. In addition, the more recent national and international functions of so~g5-shosha are defined as follows :

1) transacting function - it takes risks to execute and complement transactions for producers; 2) financial function - it oomplements the financial management of the industries ; 3) information gathering and research function - it gathers and researches information about the political,

economic, trade and market conditions of countries where it has will transactions ; 4) risk-hedge function - if it is necessary, it functions as a time and space buffer for transactions;

5) transporting and storing function; 6) converter function - it participates in both production and distribution ; 7) organizing and promoting function - it organizes or supports industries for the development of natural

resources and energy; 8) developing function - it organizes or supports industries for the development of natural resources and

energy; 9) it integrates the above eight functions and promotes large national or international projects.

THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM, THE CASE OF MITSUI

emerged as so~g6-sh5sha by examining relationships between Mitsui Gomei (the holding company), its direct subsidiaries, affiliates, and Mitsui Bussan itself.

(1) Historical Development

As stated in Chapter I, Mitsui Bussan was established in 1876 as the merger of Senshu-

sha and Mitsui Kokusan-kala (domestic trading establishment). Senshu-sha, which was established by Kaoru Inoue in 1874, traded such items as rice, coal, raw silk and tea, both

domestically and internationally, as well as woolen cloth and blankets for the newly formed

army. The rice trade for Choshu prefecture where Inoue was born and raised up and the

woolen cloth and blankets for the army which required strong political connections were

very profitable. Snshu-sha earned ~l49,132 in net profits over two years.33 Bussan which

took over Senshu-sha continued the rice trade as well as the import contract with the army.

Table I I is a list of commodities Bussan traded in 1876. As this table indicates, Mitsui

Bussan traded various commodities domestically (43.8~~) and internationally (56.2~~) from

the beginning, though exports were only a small portion (l0.5~~).

Table 12 is also a list of the kinds and sales of commodities which Bussan transacted

in 1890. In this list, rice, coal, and cotton were particularly important, because these trades

TABLE 1 1 . TRANSACTIONS OF MITSUl BUSSAN (July-December in 1 876)

Commodities Quantity Sales Customer or Destination

Ex port

Coa I

Raw silk

Tea

776 tons

25,398 papers

N.A.

(f)

3,837

49,100

4,358

Shang-hai (China)

for Tokusumi

U.S.A.

57,295 (10.5~)

Import

Woolen Glass bottles

Steam engine Flannel

Gold Go]d Hemp bags Petro]eum

N.A. l 1 4,525

3 02

5,163

31

101,420

l0,142

5,399

1,839

the army the army

the army

the army (Konoe-kyoku) consignment Bussan Mitsui Gumi consignment

238,841 (43.8~)

Domestic

Rice

Copper coins

Leathers

Coal Army socks Misceffaneous

52,665 koku 1 5,000 yen

227,699 14,526

266 622

187

5,364

to Ministry of Finance

consignment for Kyoto Prefecture

the army (Konoe-kyoku) for lzu islands

248,864 (45.7~)

Total 545,000 (lOO.O~)

Net profit 7,922 (1.45~~)

Source: Kohon Mitsui Bussan Hyaku Nen Shi, p. 79.

3B Nihon Keieishi Kenkyujo, op. cit., p. 44.

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82

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM, THE CASE OF MrrsUl 83

contributed not only to Bussan's profitability, but also to the establishment of Bussan's

trading pattern as a so~g6-shdsha. In order to understand the way how Bussan emerged as a so~gd-shosha, it is necessary to look at these trades carefully.

(a) The Rice Trade34: In Meiji Japan, the rice trade was an important commodity for traders, because about 80~ of the government tax revenue was from the agricultural sector

and the main product was rice. Mitsui Bussan earned high profits from the rice trade with

taxpayers. In Mitsui Bussan's rice trade, consignment sales and exports were especially

important. Mitsui Bussan started the rice documentary draft for taxpayers (farmers) with

the cooperation of Mitsui Bank and got a commission of 2.5~~ on these transactions. This

inter-relationship between the documentary drafts of Bussan and the Bank would be ex-

panded in many fields of trade.

In the 1880s, in order to acquire foreign currency for industrialization, the Meiji gov-

ernment consigned Mitsui Bussan for the rice exportation to Europe. Mitsui Bussan got

a commission of 2.5~ on both the loading cost and sales abroad. After 1890 when the

government ended the consignment, Bussan continued to export rice alone. Bussan pione-

ered the European market, especially the connection with the London market through these

exports, and this connection would be very important for the importation of machinery.

In 1890, the London branch achieved its highest sales in the rice trade and miscel]aneous

machinery imports to Japan (see Table 12).

(b) The Coal Trade35: In 1875 the Meiji government decided to develop the state-owned

Miike mines on a full scale. The next year the Minister of Industry, Hirobumi Ito, who

was a close friend of Kaoru Inoue, consigned the export of the Miike coal to Mitsui Bussan.

Immediately following the establishment of Mitsui Bussan, it got an exclusive sales contract

for the Miike coal. These exports were also aimed at the acquisition of foreign currency,

so the government subsidized Mitsui Bussan in many ways. For example, in addition to

the commission of 2.5~~ on gross sales, Bussan gained 50~~ of the net profit on the sales

as a subsidy. Moreover since the shipping business had been dominated by Mitsubishi at

this time, the government allowed Bussan to buy its own ships with the subsidies. This

was the beginning of Mitsui Bussan's shipping business. Bussan fully exploited these ships,

not only for coal trade, but for other imports and exports as well.

With the coal trade, Bussan also aggressively pioneered the Asian market. At that

time. Bussan had three branches in Asia; Shanghai, Hong Kong and Singapore. These were opened for the coal trade and later would play a significant role in Bussan's Asian trade

as a whole. Furthermore, the most important thing was that Bussan had recognized the

potential of the Miike mines because of its coal trade and forced Mitsui Bank to outbid

for the Miike mines in 1888. As mentioned in Chapter I, Mitsui Mining company con-centrated on the Miike mines which would become one of the three pillars of the Mitsui

zaibatsu. Thus Bussan integrated mining into Mitsui's main business at the urging of the

Bank.

In the rice and coal trade, Mitsui's strong connections with the government through

Kaoru Inoue brought many advantages. The government subsidized Bussan as a pioneer

" The fonowing chronological facts in this case depend on Nihon Keieishi Kenkyujo, ed., op. cit., pp. 93-ll2.

35 Also the following chronological facts in this case depend on lbid., pp. 1 12-133.


in Japanese globalization and industrialization. Mitsui Bussan along with the Mitsui zai-

batsu was thus called Seishd (the political merchant).

(c) Tlle Cotton Spinning Trade36: In Japan, the Osaka Cotton Spinning Co. Ltd., was the first large modern cotton spinning mill, it was established with 105,000 spindles in 1882.

After the business boom in 1886, more than 20 Iarge mills were established and in 1890 the

domestic output surpassed that of imports. Furthermore, in order to expel foreign imports,

the Japanese industry changed its main product from thick threads to medium threads, and

also changed its raw materials from the domestic and Chinese cotton to Indian cotton. From 1893 on, the industry began to export its products to the Asian market.

Mitsui Bussan made three important contributions to the development of the Japanese

cotton spinning industry. First was that Mitsui Bussan imported most of its cotton spinning

machinery from England. For the establishment of the Osaka Cotton Spinning Company,

Bussan imported the first spinning machines from Platt Brothers Company and the steam

power engines from Hargrieves company. In 1886 Bussan was the sole selling agent for Platt Brothers in Japan. From January 1892 to January 1893, the Japanese cotton

spinning industry increased by 218,890 spindles, it imported machines of which 81~~ of

this increase was imported by Bussan from Platt Brothers. Bussan got a commission of 2.5

~ of the total importing cost. The Bussan's London branch, which had been established

for the rice trade, as well as the ships which were purchased for the coal trade had played

a significant contribution to this importation.

A second contribution to the industry was that Mitsui Bussan imported raw cotton

for the industry. As the industry changed its raw cotton from domestic and Chinese to

Indian, Bussan opened a branch in Bombay and increased the importation. In 1897 Bus-san's imports of raw cotton (~~13.82 million) exceeded those of the coal trade and became

the largest trading commodity. Its sales amounted to 26.1~ of the gross sales of Mitsui

Bussan. As Table 13 indicates, Bussan imported about 30~ of Japan's gross imports of raw cotton in the beginning of the twentieth century.

TABLE 13. BussAN's SHARE OF TOTAL RAW Co~oN' IMPORTS (fl.OOO & ~)

Year Total Imports (A) Bussan's Share (B) (B/A) ~ 1897

1898

1899

1900 1901 1 902

l 903

1904 1905

1906

1907 1908

1909

43 , 620

45,744 62,2 1 l

59,472

60,650

79,785

69,518

73,420

110,623

82,622

1 15,642

90,256

l08,308

13,822

13.237

23,984

18,282

14,697

21,726

17,468

l 7.642

25,585

26,217

37,214

28,357 30,45 1

31.7

28.9

38.6

30.7

24,2

27.2

25.2

24.0

23.1

3 1 .7

32.2

31.4

28.1

Source : Nihon Keieishi Kenkyujo ed.,op, ar p 232

:6 Ibid., pp. 149 159

THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM, THE CASE OF MITSVI

Finally, Mitsui Bussan pioneered and facilitated the export of the final products of

the industry. After the Sino-Japanese war (189l~l895), the Japanese cotton yarn industry

had become a net exporter, and after the Russo-Japanese war (1904-1905) the Japanese products drove out not only low grade Indian thread but high grade British thread in the

Chinese market. Bussan had initiated these exports, and by 1910 Bussan handled one third of the total exports. In Bussan's sales, the cotton yarn trade became the third largest

item following raw cotton and coal.

Bussan had also been trying to facilitate the export of cotton fabrics to the Asian market,

which had been dominated by American and European products. Although this did not develop easily, Bussan organized small and medium sized firms under the trade association

and standardized the size and quality of products for exportation in order to increase its

international competitive power. In addition, Bussan subsidized Toyoda Loom Works (the forerunner to Toyota Automobile Co. Ltd.) from 1899. After the Russo-Japanese War, the export of cotton was increased and Bussan's export ratio amounted to over 40~

of total exports by 1910.37 The Shanghai, Hong Kong and Singapore branches, which had been opened for the coal trade, played significant roles in pioneering the Chinese and south

Asian markets for cotton yarn and fabric exports.

Thus Mitsui Bussan, accumulating international trading expertise, fully exploited its

business opportunities (including the government subsidies and facilities) in these trades.

It established the basic functions of so~gd-shosha as in the cotton trade. In the cotton in-

dustry. Bussan imported raw materials and machinery, and initiated its export. It also

organized exporting associations, standardized size and quality and subsidized the national-

ization of the machinery production. Thus, Bussan participated in the whole activities of

the industry, as the organizer and coordinator from the very early stage of Japan's indus-

trialization.

Japan as a late developing country with scarce natural resources, there had been a need

for an international importer of raw materials and advanced machinery to industrialize

rapidly. In addition, Japan did not have a complete autonomy of tarrif right until 1911.

At that time free trade with the Western world meant the serious destruction ofthe domestic

industries of Japan. Under these circumstances, in order to compete with Western products

and to gain foreign currency for industrialization, Japan also needed a strong exporter for

its own products. Mitsui Bussan developed to respond to these requirements simultaneously

and also to further diversify its trading commodities in order to exploit its facilities and

the talented human resources which were precious and scarce in Meiji Japan.38

(2) Managerial Resources and Structures

By 1910, Mitsui Bussan transacted about 20~ of all Japanese imports and exports as Table 14 shows. In order to achieve this incredible figure, Bussan had to employ many

talented managerial resources and establish a well organized managerial structure. In this section, the transition of the managerial resources and structures will be examined.

(a) Accu,nulated Human Resources and Economy of Scope: Although Mitsui Bussan

" Ibid., p. 36.

8. According to E. T. Penrose. The Theory of the Growth of the Firm. Bining & sons, London, 1959, the growth of firm by diversification is one ot the resuhs ot exploitation of underutnized resources.


TABLE 1 4. BUSSAN'S SHARE OF TOTAL IMPORTS AND EXPORTS IN JAPAN (Yl,OOO, ~~)

1897

1898

1899 1 900

1901

1 902

l 903

1904 l 905

1 906

1 907

l 908

1 909

1910 1911

Export

Total Bussan ~~

163,135 10,432 6.4 165,754 13,404 8.l 214,930 25,439 1 1 . 8 204,430 22,093 l0,8 252,350 20,952 8.3 258,303 24,625 9.5 289,502 33,043 1 1 .4 319,261 43,764 13.7 321,534 51,604 16.0 423,755 71,409 16.9 432,413 82,107 19.0 378,246 71,232 18.8 329,455 85,241 25.9 457,086 102,570 22.4 455,734 1 1 1 ,644 24. 5

Im port

Total Bussan ~~

219,301 33,540 15.3 277,502 38,788 14.0 220,402 40,015 1 8.2 287,262 45,248 15.8 255,817 37,219 14.5 271,731 44,076 16.2 317,136 47,956 15.1 371,361 55,285 14.9 488,538 84,769 17.4 418,784 74,417 17.8 494,467 1 04,450 21 . 1

436,257 102,407 23.5 334.986 76,282 22.8 440,577 87.071 19.8 530,069 1 13,336 21.4

Total

Total Bussan ~~ 382,436 43,972 11.5 443,256 52,192 11.8 435,332 65,454 15.0 491,692 67,341 13.7 508, 1 67 58, 1 71 1 1 .4

530,034 68,701 13.0 606,638 80,999 13.4 690,622 99,050 14.3 819,972 136,373 16.8 842,539 145,826 17.3 926,880 186,557 20.1 814,503 173,639 21.3 663,541 161,523 24.3 897,663 189,641 21.1 985,803 224,980 22.8

source: Nihon Keieishi Kenkyujo ed., Kohon Mitsui Bussan Hyakubeb Shi, p. 1 38.

was privately owned by the Mitsui family, it was professionally managed since its inception.

Takashi Masuda, who had been the vice president of Senshu-sha, managed Bussan with a long continued strength. Later he also initiated the Mitsui zaibatsu as a whole. Masuda

employed a large number of college students as salaried managers. The majority of them

came from Tokyo Commerce College which later became known as Hitotsubashi University.

He recognized that only well educated students could handle the various domestic and inter-

national transactions with the required necessary forms of modern expertise ; such as a

knowledge of foreign languages, international trade, finance, insurance, technology and

law. Since 1880, Masuda continued to support Tokyo Commerce College by employing its graduates periodically. From the end ofthe century he began to periodically hire students

from engineering schools as well. Amazingly by 1914, Mitsui Bussan employed 731 college

graduates out of its 1,807 total employees.39

Compared to the theory of economies of scope of intermediaries, the reason for the

diversification of Mitsui Bussan as a so~gd-sh5sha can be explained from the point of view

of fully exploiting these accumulated human resources40 as well as a single set of physical

facilities. To achieve economy of scope means using the same facilities to market and dis-

tribute different products. In this sense, Mitsui Bussan fully exploited its human resources

for many different products (various throughputs). Theoretically when a manufacturer's

volume attained a scale that would reduce the cost of transporting, storing, and distributing

its products to the level of that achieved by that of the intermediary through its volume eco-

nomies, the intermediary lost his cost advantage in the distribution of the product.41 In

*' s. Yonekawa, "Sbgo-shosha Keisei no Ronri to Jittai," Hitotsubashi Ronso, vol. 90, #3. Tokyo, 1983, p. 336.

'~ H. Morikawa, "so~g5-shosha no Seiritsu to Ronri," Y. Togai etc., ed., sogo-shosha no Keieishi, pp. 43-63 .

'* A. D. chandler. Jr., "Chapter I drart - Definitions and Explanatory Theory," tor a torthcoming book, p. 18-20.

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GRour CAPrrALISM, THE CASE OF MITSUI 87

the case of Mitsui Bussan, however, its accumulated human resources and facilities sustained

its cost advantage after mass production attained a certain level of scale because of Bussan's

accumulated human resources; in other words, the information processing abilities of

Bussan could add some value which manufacturers couldn't get at that time to the physical

distribution. Therefore, within the compet,itive international market. Mitsui Bussan could

develop as a so~g5-sh5sha, particularly as a coordinator and an organizer of industries rather

than as a simple trading company.

In general, so~g5-sh6sha can exploit the advantage of their position in a country where

industries are not large enough to compete with foreign companies and which is inevitably

involved in the global market. In this sense, so~gd-sh5sha is the result of the pursuit of

economies of scope and not scale.42 1 think this may be the same reason why several so~g6-

sh6sha emerged in the post World War 11 economy of Japan. Japan was inevitably in-volved in the post war global market and in order to rapidly recover from the damage of

the war so~gd-shosha had to pursue the exploitation of economies of scope as they had done

since the Meiji Period.43

Thus the frst exploitation of the economy of scope in Bussan was to achieve economy

by various throughputs within a single set of human resources and facilities. Another pursuit

of such an economy of scope in Mitsui Bussan was to implement economy of scale by small

collective transactions in the same industry. In those days, there were a few industries

whose products could bring the scale economy to Bussan. Bussan, in order to fully utilize

its accumulated human resources and facilities, collected small quantities of products from

many firms in the same industry. Then Bussan could attain an economy of scale through

various sources. This was the second exploitation of the economy of scope. This kind

Two KINDS OF EcoNOMY OF SCOPE

･ Sogo shosha=information processing abilities

･ accumulated human resources ･ accumulated physical facilities

Various products (throughputs) Various Sources

Various Single Import Import ProducYScope ..-> Product scale '~>

So~g5 Sogc-( -sho~sha shosha scope Global LEx/;p~?~ Various Scope Producers Various Export Market producers Global¥J Domestic

Market Domestic Market Market

42 Prof. Yamamura explains the advantage of so~go-shdsha from the economy of scale and risk-reduction by distributing risks over many transactions. (K. Yamamura, "General Trading Company in Japan : Their Origine and Growth," H. Patrick, ed., Japanese Industrialization and Its Socia/ Consequences, Univ, of Calif-

omia Press, 1976). But risk-reduction by distributing risks over many transactions contradicts with eco-nomies of scale itself. I think it is very difricult to explain the emergence of sogo-shosha from only the con-

cept of risk-reduction and economy of scale.

d3 Sogo-shosha (the general trading company) has played significant roles for the economic development in postwar Japan as well as the prewar period. Therefore we must analyze the similarities between the pre and post war economic environment in which sogo-shosha could fully exploit its special characteristics dis-

tinguished from an ordinary trading company. In this analyze, the concepts of ceonomies of scope and the information processing abilities are very critical and useful.


of scope economy was to be related to the industrial organizing function of a so~g5-sh5sha. In

order to achieve the collective scale economy by the scope economy from various sources,

the so~g(~-slldsha inevitably have to take on the role of an organizer. The following explana-

tion presents a good example of this.

The Japanese safety matches industry had been an important and a profitable exporting

industry, because the industry was self-sufficient in regards to its supply of raw materials.

Also its production process was labor intensive and rather simple. Since 1895, Mitsui Bussan had been exporting matches under its brand name to Southeast Asia. But because

each producer was very small and unstable, Bussan formed Osaka Match Co., Ltd. by join-

ing three small producers and appointed Bussan's Osaka branch manager the additional

post as the president of the company in 1897. The next year, Bussan also made an exclusive

contract with a large raw material producer in Kobe to increase and stabilize a collective

quantity. As a result, Bussan's exports, which had been less than ~~500,000 in 1900 climbed

to ~2,548,000 in 1904. This figure was 26~ of the total exports of the industry at that

time.44

Thus, Mitsui Bussan as a so~g5-sll6sha could develop by complementing the economy

of scale by pursuing two kinds of economies of scope. The key to Bussan's success in this

complementary situation was its aggressively accumulated information processing abilities

-that is; human resources.

(b) The Transition of the Ma,7aging Structure45: Mitsui Bussan had started with only 74 employees and ~~~545,000 in gross sales in 1875, but it became the largest general trading

company with 1,213 personnel and about ~224 million in gross sales by 1909 when it was

incorporated. Until then, accompanied by the expansion of business and personnel, the

management structure of Bussan evolved and changed extensively. It is impossible to trace each change here so we will examine only the most important changes.

As stated in Chapter I, in 1893 Mitsui Bussan was reorganlzed from a private partnership

into an unlimited corporation according to the enactment of the Commerce Law. Thus,

the Mitsui family members who used to be just owners became the nominal presidents, and

Mitsui Bussan introduced the managing director system. At that time, the main office

was simply divided into four sections : general affairs, domestic trade, international trade

and the controllers' sections.46

As Bussan's businesses boomed, especially abroad after the Sino-Japanese War, Bussan's

simple organization was not able to control and coordinate such complicated matters. In

1898 the main office was reorganized into the Administration Department and the Operating

Department. The Administration Department was charged with the overall management of Bussan's issues, and the Operating Department was in charge of the day-to-day business.47

By the 1890s Bussan expanded a large number of branches, and each branch was given

autonomy based on a self-paying account.48 This positive attitude toward the autonomy

a4 Nihon Keieishi Kenkyujo, ed., op. cit., pp. 260-261.

d5 The historical facts of the transition of Mitsui Bussan's managerial structures depend on Nihon Keiei-shi Kenkyujo, ed., op. cit., pp. 197-216.

46 Nihon Keieishi Kenkyujo, op, cit., pp. 198-201. 47 Ibid., pp. 200-207.

a8 H. Morikawa, Meljiki Mitsui Bussan no Keiei Soshiki (Organizational Structures of Mitsui Bussan in Meiji Period). Keiei Shorin, Hosei Univ. vol. 9, No. I , Tokyo, 1976.

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM, THE CASE OF MITSUI 89

made Bussan's employees, especially young college graduates, ambitious, energetic, and

powerful. A recent study of organizational behavior shows us that a decentralized and

an autonomous organizational structure under the loosely defined mission extracts self-

organizing abilities from human beings much easier than a centralized and bureaucratic

one.49 The reason why people evaluated "Bussan is strong because of it human resources"

is related not only to that is aggressively accumulated highly talented college graduates

but also it had an autonomous structure which could fully utilize its human resources. But

as Bussan's business diversified and developed internationally, its control and coordination

between both branches and commodities became one of the most important issues. In 1893, Bussan already had thirteen domestic branches. By 1908 these branches had reached

22 at home and 38 abroad.50 After the Sino-Japanese War, these branches began to com-

pete with each other, and sometimes one branch might sell short and another might overbuy

the same commodity. In order to control and coordinate these branches, Bussan intro-

duced three important systems :

Department System .' In Bussan, there were two department systems. One was that of the main office, as stated above (the Administration and Operating Departments) ; another

was for special commodilies. This special commodities department was created for the

control and coordination of the branches. In Bussan's trade, some commodities, such

as rice, coal and raw cotton, became large and important, and many branches overlapped

in dealing with these commodities in various stages. The department system for special

commodities was established to control all transactions of the same commodity, with au-

thority over all the branches.51 The first department of this kind was established within

the Osaka Branch as the Raw Cotton Department in 1894. This department was charged with the control and coordination of all raw cotton transactions over the branches. The

concrete way that these departments controlled and coordinated the transactions will be

examined in the next chapter. This department system used a common accounting system (ky5tsa-keisan seido).

The Common Accounting System: By the 1890s Bussan's branches had developed very independently and on a self-paying basis. Along with establishing the department system

for special commodities, Bussan introduced the Common Accounting System. This ac-counting system was to summarize and settle accounts of special commodities in the main

office, rather than in each branch. This system helped centralize the businesses, but some-

times impeded swift transactions at each branch. The system would be, therefore, modified

along with the department system for special commodities.52

General Branch Managers Annua/ Meeting (shitenchd shimon kaigi),' In addition to

adopting the department and the common accounting systems, Mitsui Bussan established

the General Branch Managers Annual Meeting in 1902. This meeting was to be held an-

nually in the main office with the general branch managers and the general managers of

the corporate office. At this meeting, the managers inquired about important issues for

'D I. Nonaka, Kigyo Sinkaron (The Evolutionary Theory of the Firm), Nihon Keizai Shimbunsha, 1985. 50 Nihon Keieishi Kenkyujo, ed., op, cit., p. 207.

51 Ibid., pp. 209-210.

52 Ibid., pp. 210-212.

[December ElTOTSUBASHHOURNAL　OF　COMM■RC田AND　MANAG田MENT90

THE　ORGANIzATI0NAL　CHART0正MlTsUI　BUssAN（1905）FIGURE3

PRESIDENT

CONTROLLERMANAGlNG　DIRECTOR

RR

ADMlNlSTRAT1ON　DEPARTMENTOPERAT10NAL　DEPARTMENT

宛固ω丙＞カO＝ω向O」『H◎Z

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00＞［ω向O↓HO乞

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ω＞≧司刃＞Zω－ωOOω宛＞乞O＝

＝O宍穴＞－O○勺－巳o＝向肉くO向｝＞射一「竃向2↓

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Nihon　Keieishi　K釦kyμjo，op．〃．，p．201Source

the whole company and exchange ordinated its branches and their

is shown in Figure 3.

information.53 Thus

various transactions.

Mitsui Bussan controlled

The organizational chart

and co-

in 1905

531b14．，pp．212＿213

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM, THE CASE OF MITSUl 91

IV. The Relationship~between Mitsui Bussan and Its A liates ffl

- The Case of Onoda Cement Co., Ltd. -

In this chapter, the relationship between Mitsui Bussan and Onoda Cement will be examined as a concrete example of the way Bussan controlled its affiliate and integrated

it into Mitsui Gomei. Onoda Cement Co., Ltd. was established in 1881 by the ex-samurai

(warrior) class in Choshu as the first Portland cement manufacturer in Japan. It was very

unique that Onoda Cement was incorporated by using public bonds from the warrior class

which had been issued by the government to pacify the declining samurai class at the begin-

ning of the Meiji Era.54 This establishment was supported by Kaoru Inoue who was one of the dominant politicians from Choshu as well as a strong supporter of Mitsui, as men-

tioned in previous chapters.

(1) Onoda Cement and its Exclusive Sales Contract with Mitsui Bussan

Onoda Cement started with an annual production of only 586 tons and gradually de-

veloped along with the slow diffusion of cement into Japan. But as Asano Cement Com-

pany, which was established in 1883 by purchasing state-owned facilities, grew into the

largest cement firm and many small and medium sized companies were also established during the first business boom (1886-1890) because of the self-sufficiency of raw materials

and the ease of production, the cement industry became very competitive. In order to

survive in the competitive market and to market widely from 1891, Onoda Cement made a contract with Mitsui Bussan for the sales of its products. The sales portion of Mitsui Bus-

san was limited by contract to under l0,000 barrels (about one third of annual production).

From 1893, moreover, in order to keep up its competitive advantage by reducing unit costs,

Onoda Cement began to scale up its capacity aggressively. In 1893 it decided to increase

its annual production capacity from 7,200 to 12,000 tons. At the beginning of the second

business boom caused by the Sino-Japanese War (1894-1895), it decided to build a new

factory with an annual capacity of 20,000 tons with the latest technology.55 In order to

procure the capital for this expansion, it decided to increase the paid-in capital from

~~IO0,000 to ~~600,000 and to sell its stocks to the public (i.e. to the non-samurai class) sub-

scription. With this increase, Mitsui Bussan invested ~l4,000 (2.3~~ of the total capital).56

And Bussan imported the latest machinery (about ~~400,000 worth) for Onoda Cement

from Germany and the United States for a commission of 2.5~･57 Thus, Mitsui Bussan gradually began to participate both in the capital procurement and importation of production

machinery, and in the distribution of the final products of Onoda Cement, as it had with

the cotton industry.

*' s. Yonekura, "Shizoku-Jusan Seisaku to Onoda Cement," Hitotsubashi Ronso, vol. 87, ~3, Tokyo, 1982. 5* S Yonekura "Onoda Cement m okeru Shlzoku Jusan Klgyo Dappl Katei," S. Yonekawa and M. Hirata,

ed., op. cit., pp. 237-263.

'" Onoda Cement Seizo-gaisha, ed., Onoda Cement Goju Nen Shi, Onoda Cement Seizo-gaisha, Yama-guchi, 1931.

57 The internal document of Onoda Cement Co., Ltd. (1), Melji Sanju-ichi nen Juichigatsu. Kangyo Ginko Kariirekin lkken. Kaikei-ka, in Onoda's Archives, Tokyo.

92 HITOTSUBAsm JOURNAL OF COMMERCE AND MANAGEMENT [December

Because of the war inflation and the decline of the value of Yen currency, this expansion

cost much more than Onoda had anticipated. By the end of 1897 it had to increase the

capital to complement the construction from ~i~600,000 to ~~~1,000,000. At this time, 40~~

(~l60,000) of the nominal increase was paid in.5B This new factory was completed in the

spring of 1900 with a large unexpected deficit. Furthermore the second business boom did not last long and from 1898 the tone of the market, as well as the market price, had grad-

ually declined and developed into the economic depression of 1901. In addition, since

one of Onoda's employees in the Osaka branch had forged ~~~160,000 worth of Onoda's bill notes, Onoda Cement fell into a financial crisis at the end of 1901, with about ~~190,000

in losses (their operating loss was about ~~30,000).59 At that point Onoda Cement asked

Mitsui Bussan for an exclusive sales contract for Onoda's products, as one of the crisis re-

medies. On Bussan's operation side, however, there was strong opposition to such a sales

contract, because the cement industry was so competitive and it seemed very difficult for

Mitsui Bussan to make a proper profit. In spite ofthe opposition this exclusive sales contract

was established in December 1901 with the strong support of the managing director of Mitsui

Bussan, Takashi Masuda, who had been persuaded by Kaoru Inoue.60 Thus Mitsui Bussan began to participate fully in Onoda Cement. The main points of the contract were as fol-lows :61

1) Onoda Cement consign all products to Mitsui Bussan, both for domestic and inter-

national sales ;

2) Bussan would not transact any other cement, except when a customer designated a special brand ;

3) After the establishment of this contract, Onoda abolished its sales branches;

4) Onoda left the method and places of sales in Bussan's charge. Onoda just in-formed Bussan of the minimum sales price and Bussan sold the products for higher

than the minimum price ;

5) As all sales costs (transportation, Iabor, insurance, storing and the like) were borne

by Onoda, Bussan could deduct these costs from the gross sales amounts;

6) Bussan got a commission of 3.5~ on the sales amount;

7) Bussan could loan to Onoda a mortgage on products of up to ~~~50,000.

Under this contract, Onoda Cement became simply a manufacturer, and Bussan was charged with the sales of all the products that Onoda produced. The next most important

thing was for these two companies to establish a means to control and coordinate the pro-

duction and distribution efficiently.

(2) The Managing Structure of Mitsui Bussan and Onoda Cement

In December 1901, according to the contract, Mitsui Bussan established the special

commodity Department for cement within its Osaka Branch. As stated in chapter rv. Bus-

*s onoda Cement Seizo-gaisha ed., op. cit., p. 185.

59 The Internal Document of Onoda Cement Co,, Ltd. (2), Melji Sanju-yo Nen Rinji Kabunushi-Sokai, Onoda's Archives, Tokyo.

60 Onoda Cement Seizo-gaish~~ ed., op. cit., pp. 230-233.

61 The Internal Document of Onoda Cement Co., Ltd. (3), Mitsui Bussan Itte-hanbai Keiyakusho, Onoda's

Archives. Tokyo.

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CALITALISM, THE CASE OF Mrrsul

FIGURE 4. THE ORGANIZATIONAL CHART OF ONODA CEMENT AND MITSUI BUSSAN (1909)

Onoda Ceme*t M*tsu* Bussan

93

OSAKA BRAN. CH

BoaTd of Dlrectors

Penodical Meeting

Cement Dept

lvlanagmg Dlrector

Chief Eng]neer Correspondent

Stonng Accountlng General productlon Sales

Sectlon Section Sectlon Affalr

san's department system for special commodity required that one department was in charge

of the entire distribution process (buying-in, transit and sales) of that special commodity,

with authority over all branches. The department controlled and coordinated the sales activities of each branch, as the corporate office did. In the Cement Department, the Osaka

Branch manager took on the additional job of department manager. A special correspond-

ent for Onoda Cement was also inaugurated into the branch.

At the same time, in order to cooperate with Mitsui Bussan efficiently, Onoda Cement

organized its structure into five sections (production, general affairs, accounting, sales and

storage), and each section was to talk with Bussan concerning each special matter. In

1906, for example, because of the explosion in demand following victory of the Russo-Japan-

ese War. Bussan asked Onoda for permission to import foreign cement products. This proposal was sent to Onoda's sales section by Bussan's special correspondent and the sales

section analyzed the proposal and presented it at the executive meeting. The executives

of Onoda and the Cement Department of Bussan then discussed the matter. Onoda ac-cepted Bussan's import of foreign cement, on the terms of the loan for its capacity expansion

from Bussan.62 Instead of this compromise Onoda borrowed ~i~100,000 from Mitsui Bussan.

In 1909 the periodical Cement Meeting was established, and the department officers

and the cement salesmen from each branch at Bussan as well as the executives, engineers

and the sales section officers from Onoda attended. (The managerial structure is shown

in Figure 4.) Moreover, every six months Mitsui's Cement Department reported to

" The Internal Document (4). Mezji 39 nen yori Showa 18 nen Mitsui Bussan Tasha cement Toriatsukai lkken. Hisho-ka, Onoda's Archives.

94 HITOTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT

TABLE 1 5. TOTAL OUTPUT AND SALES OF ONODA CEMENT

[December

(ton)

Year Output Sales Domestic (~~) Export O(;)

1897

1898 1 899

l 900

1901

1 902

1 903

1 904

1905

1906

1907

1908 1 909

1 3 ,447

14,760

15,145

23,141

25,633

3 1 ,446

30,069

34,434

34,080

35,437

33,926

54,648

58,582

14,792

l 4,982

14,661

22,849

23,654

31,815

27,782

32,924

36,695

37,354

34,298

52,961

61,430

14,428 (97.5)

14,837 (99.0)

14,395 (98.2)

20,758 (90.8)

19,610 (82.9)

22,808 (72.5)

12,810 (46. 1)

23,875 (72.5)

25,165 (71.7)

20,173 (54.0)

23,447 (68.4)

37,936 (71 .6)

42,467 (72.5)

363 (2.5)

147 (1.0)

266 (1.8)

2,091 (9.2)

4,044 (17. 1)

9,007 (27.5)

14,972 (53.9)

9,049 (27.5)

l 1,530 (26.3)

17,182 (46.0)

10,851 (31.6)

15,023 (28.4)

18,963 (27.5)

Source : The Statistics of Onoda Cement (Onoda's Archives).

Onoda information about domestic and foreign

and commission amounts from each branch.63

biddings, market conditions, and the sales

(3) Mitsui Bussan, Onoda Cement and Mitsui Gomei

Under the exclusive sales contract, Mitsui Bussan and Onoda Cement, avoiding fierce

domestic competition, focused their efforts on the increasing exports. As Table 15 shows,

after 1901 the export percentage of Onoda's sales rapidly increased. These increases de-

pended on the strong pioneering of the Asian market by Bussan. Mitsui Bussan expanded

its marketing power deeply into China, especially after the Russo-Japanese War (1904-1905).

In addition, as the third business boom caused by the war victory began, Mitsui Bussan

began to play the more positive role of industrial organizer for Onoda Cement.

First, Bussan financed Onoda's capacity expansion. Because of the demand explosion

of the third business boom, Onoda's production capacity gradually began to fall behind

Bussan's sales ability. So in November 1906, Onoda asked Bussan for a loan of ~~~IO0,000

for their capacity expansion in the result of the compromise as stated above. After Bussan

got permission for the loan from the Mitsui Family Council, it gave the loan to Onoda with

7.5~~ annual interest.64

Second, Bussan initiated the construction of a new factory in Tairen (Dalian) in Man-

churia. After the Japanese victory in the Russo-Japanese War, the Chinese market, par-

ticularly the Manchurian market, was opened to Japan. Bussan aggressively pioneered

this market. In 1906 as the semi-public and semi-private railroad company named Minami

Mansha Tetsudo (the South Manchurian Railroad) was established by the Japanese govern-ment, Mitsui Bussan noticed the potential for a cement demand in Manchuria and the Tairen

63 These periodical reports are kept in Onoda's Archives.

6i The Intemal Document of Mitsui Bussan, Meiji 39 nen yori dou 40 nen Kanribu Kaigian, (Bussan 1 30), in Mitsui Bunko (Archives).

65 The Internal Document of Onoda Cement (5), Mitsui Bussan Itte-hanbai Keiyakusho Tsuzuri, Onoda's Archives.

19851 THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM THE CASE OF MITSUI 95

(Dalian) branch officer of Bussan proposed at the Cement Meeting to research the possibility

of constructing a new factory in Manchuria. Bussan then initiated market research through

Manchuria. China and Korea and sent a precise report to Onoda. In 1907 they decided to build a new factory, and Bussan imported the production machinery for the new factory

from Germany at a commission of 2~~ of the total cost.65

Third, Mitsui Bussan integrated Onoda Cement as an affiliate company into the Mitsui

business combine through further financial aid. At the end of 1907, in order to procure the construction capital for the Manchurian factory, Onoda decided to increase its paid-in

capital from ~~600,000 to ~~~l,200,000.66 In this increase, the Mitsui Family Council invested

~~~150,000 (12.5~ of the total paid-in capital) at the request of Mitsui Bussan and became

the largest stockholder. When Mitsui Gomei was established in 1909, these Onoda's se-

curities were transferred to the assets of Mitsui Gomei as the holding company (as we have

seen in Chapter II).

Finally. Mitsui Bussan supplied managerial resources. In 1906 when the relationship

between these two companies was becoming closer, Bussan sent Eitaro Fukuhara to be

managing director of Onoda Cement. At that time Onoda adopted the five directors ad-

ministration system, and the managig dirnector was chosen by the mutual vote by the

directors. Fukuhara, who had graduated from Keio College entered Mitsui Bussan in 1 880 and successively held many posts (such as branch manager in Hong Kong, assistant

branch manager in London and Osaka, sections chief of the coal, the research and investiga-

tion, and fire insurance sections in the Tokyo main office).67 Fukuhara was also the nephew

of Kaoru Inoue, who was influential in both companies. So that Fukuhara, as managing

director of Onoda Cement, was an important mediator for both Mitsui Bussan and Inoue, In 1916 Fukuhara relinquished his post as managing director to the director Shinzo Kasai,

who was not only the founder's son, but also an excellent cement engineer in Japan.68 Until

then the Fukuhara-Kasai managing tandem led to a rapid growih in Onoda Cement. This

combination was the best administration for the strategy of the two companies. While

Fukuhara was charged with the distribution and the negotiations with Bussan. Kasai was

charged with the production and the improvement in quality.69 Thus Bussan participated

to the whole activities of a firm and integrated it into the Mitsui zaibatsu as an affiliate.

Now let's go back to the story of Mitsui Gornei and the emergence of interlocking

shareholding.

V. The Collapse ofMitsui Gomei and

The Emergence of Interlocking Shareholding

The economic boom caused by World War I offered great opportunities to the medium-

sized (cha-kibo) zaibatsu (such as Asano, Furukawa, Okura and Fujita) and the late-coming

66 Because of the financial crisis in 1901, Onoda had to reduce its nominal capital from fl.OOO,OOO to

f600,000 in 1903. (Onoda Cement Seizo-gaisha, ed., op. cit.) 67 K. Iseki, Gendai Bocho Jinbutsushi, Hatten-sha, 1917. 68 Kasai had studied in Munich University in Germany and got his Ph.D. there. He was evaluated as a

frst rate engineer in those days in Japan.

6D Kasai Shizo den Henshu linkai, ed., Kasai Shizo Den, Onoda Cement, 1954.

96 HrroTSUBASHI JouRNAL OF COMMERCE AND MANAGEMENT [December

(k5hatsu) zaibatsu (such as Suzuki, Kuhara, and Kawasaki-Matsukata) as well as the estab-

lished ones (Mitsui, Mitsubishi, Sumitomo, and Yasuda). While the medium-sized and the

late-coming zaibatsu aggressively expanded their business to catch up with Mitsui & Mitsu-

bishi, the two giants pursued a steady business strategy accompanied by a modest develop-

ment. In the serious depression following this boom, however, the medium-sized and late-

conung zaibatsu suffered from their expanded and diversified businesses and some of them

went bankrupt. On the other hand, the established zaibatsu frms, because of their steadiness

during the boom, grew more rapidly and even merged with some of the bankrupt medium-sized firms.70

In addition to this post war depression affected by the Great Depression in the United

States, the Japanese economy deteriorated and the Showa Depression began. The un-employment in urban cities and "the selling daughters to bondage" in the agricultural area

became serious problems and the seed-bed of Japanese imperialism and militarism. In

contrast to these economic and social problems, the prosperous zaibatsu grew larger and

larger and became the object of social criticism and popular odium. Furthermore, because

the established zaibatsu, especially Mitsui, were conservative and hesitant, they were re-

luctarlt to get involved in the new heavy industrialization. This became a source of confiict

with the militarists and the progressive bureaucrats (kakushin-kanryd) who had been trying

to promote the development of heavy and advanced industries in Japan and Manchuria.

The main reason the established zaibatsu were hesitant to participate in such costly

new businesses was that any further involvement in heavy industry would make it impossible

for them to maintain family domination over the ownership and control of subsidiaries.

Therefore, new frms that had aggressively participated in demanding heavy industrialization

and new business opportunities grew to be the "new zaibatsu" (shink5-zaibatsu), such as

Nippon Sangyo (Nissan) and Nippon Chisso (Nicchitsu). In contrast to the established

frms, these new zaibatsu had openly gathered capital from the public which propelled their

costly heavy industrialization.n The militarists and the progressive bureaucrats, therefore,

supported new zaibatsu and criticized the established zaibatsu and family domination over

ownershi p.

These anti-zaibatsu feelings reached a peak in 1932, when the money speculation of

the zaibatsu banks was revealed. In order to tighten and stabilize the Japanese economy,

the Minister of Finance, Junnosuke Inoue, in 1930 removed the ban on gold exports and

restored the gold standard system. However the zaibatsu banks (Mitsui, Mitsubishi, Sumi-

tomo) and Mitsui Bussan, anticipating the re-embargo on the export of gold and the con-

sequent slump in the yen value, had speculated in dollars in 1 931. Although the government

resisted this speculation by selling its dollars, by the end of the year the administration had

to resign en bloc. The succeeding administartion restored the gold embargo as the zaibatsu

banks had expected. Finally they and Mitsui Bussan made a big profit from this specula-

tion.7a This caused further popular resentment and fueled the anti-zaibatsu movement. "Although zaibatsu is proud of its prosperity, they have no mercy for the people" is a phrase

from one of the very popular songs of the time (Sh5wa Ishin no Uta).

" M. Udagaw~~ Shiko Zaibatsu, Nihon Keizai Shimbunsha. Tokyo, 1984, p. 263. 71 Ibid., p. 265.

" Okumura, op. cit., p. 3 and M. Takayanagi and T. Takeuchi, ed., Nihonshi-Jiten. Kadokawa, Tokyo, 1966, p. 699. (Dorugai Jiken)

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITAusM, THE CASE OF MITSUI 97

As a result of this resentment, the extreme right terrorist group ketsumei-dan assassinated

Takuma Dan, the chief director of Mitsui Gomei, in March of 1 932 in front of the newly

constructed Mitsui main building. This caused unrest at the Mitsui zaibatsu and forced

it to change its system and behavior. This was the so-called zaibatsu-tenk5 (Conversion of

Zaibatsu).

(1) The Conversion of the Mitsui Zaibatsu

For the Mitsui zaibatsu, the assassination of Dan was much more serious than simply

the assassination of the chief director of Mitsui Gomei. Dan had been not only the leader

of the Mitsui business combine but was also one of the few men who had initiated the devel-

opment of Mitsui from its beginning. He could also mediate conflicts between the family

and the businesses.73 In addition, the economy deteriorated into the Showa Depression,

and in September 1931 the military invaded Manchuria and the war of aggression expanded.

During such a critical time, when the most important zaibatsu was forced to deal with

these new conditions, it lost Mitsui its chief director in the assassination. In this section

we will examine what Mitsui did following the assassination because it indicates how the

Mitsui zaibatsu tried to cope with the new environment.

(a) The Reforms in the Management Structure: Ten days after the assassination, on March 15, 1932, Umekichi Yoneyama (Mitsui Trust Bank), Kan Makita (Mitsui Mining),

Shigeaki lkeda (Mitsui Bank) and Yunosuke Yasukawa (Mitsui Bussan) were designated

as the new directors of Mitsui Gomei. Mitsui Gomei would be managed by a council system

headed by these four directors until September of 1933, when lkeda was designated as the

head directors (hitt(~-jo~munji). These four men were professional managers in each sub-

sidiary, but none of them was powerful enough to lead the Mitsui zaibatsu as the sole leader

as Masuda and Dan had done. The Directorate (njich5-sei) collapsed when Dan was killed.74

In February 1934, in an attempt to pacify popular resentment, all the family members

resigned their presidential posts in the direct subsidiaries of Mitsui Gomei. As we have

seen earlier, these posts were nomjnal, so that the actual managements of the subsidiaries

were not affected by these resignations. Moreover, within the family, the succession of

generations was carried out.75

The coup d'etat of the military in February 26, 1936 facilitated the final big reform

in Mitsui. This was the introduction of the age-1imit system in April 1936. During the

coup d'etat, Ikeda, the head director, who escaped from the assassination, was not able

to attend the scheduled meeting. He decided to introduce the age-limit system, in order

to impress upon the public the further renewal of Mitsui's personnel and openness. This

move was aimed not only at the renewal of the personnel, but also at the reduction of the

enlarged personnel expenses. By that time, Mitsui's financial situation was also getting

" Morikawa, "Management Structure and Control Devrces for Drverslfied Zaibatsu Busmess " (Naka gawa, ed., op. cit.), p. 55. Even for Dan, it had been difficult to coordinate the conflicts between the fatnily

members and the subsidiaries and because of these conflicts he could not make quick desicions. So Dan was called "Indecisive Dan."

'4 Matsumoto, op. cit., p. 240. '* Ibid., p. 239. Ih 1933, the family head, Mitsui Takato, retired and in 1936 the branch family heads,

Mitsui Motonosuke and Gen-emon also retired.


deteriorated. In order to set an example to others, Ikeda resigned his post during the same

year, according to his system.

(b) Social Contributions of Mitsui76.. At the same time as Mitsui Gomei was making these reforms, the Mitsui zaibatsu made social contributions to show its positive attitude

and cooperation towards the government and social relief works.

In April 1932, the establishment of a ~20 million loan agreement to Manchukuo by

Mitsui and Mitsubishi was announced. In addition to the fact that the Japanese govem-

ment had strongly supported this loan, the assassination of Dan must have facilitated this

agreement. Mitsui and Mitsubishi each loaned ~~IO million. In June of the same year, Mitsui donated ~~3 million to the unemployment relief fund of Ministry of Interior and

~50,000 to Matsuzaka town, which is the birthplace of Mitsui. In order to procure these

funds, Mitsui Gomei sold the national bonds worth ~!~IO million. In November 1934 it donated ~~3 million to the famine relief fund for northern Japan.

Furthermore, Mitsui Gomei established a social work association with a ~~30 million

donation. This association was named Mitsui Ho~-on kai and it began its work in April

1934. Of course, even for the Mitsui zaibatsu these donations of ~~13 million in 1932 and

~~30 million in 1933 were not small ones. We can see from these donations how seriously

Mitsui tried to pacify popular resentment during the Showa Depression. In 1933 Mitsui

Gomei contributed ~~lO million cash and ~20 million in subsidiary bank notes (~~17 million

from Mitsui Bank and ~i~3 million from Mitsui Trust)77 to the Ho~-on kai fund. As a result

ofthis procurement, Mitsui Gomei had to sell ~~20 million worth of its stock holdings. That

TABLE 16. THE SALES OF STOCKHOLDlNGS BY MITSUI GOMEI (1933-1934)

Date Com pany Stocks Amount (f) Buyer

Sep. 1933 Oji Paper

Oji Paper

Oji Paper

Hokkaido Coal & Ship

1 1 5,000

16,000

10,000

6,000

9,485,000

1 ,304,000

l ,040,000

372,300

Syndicate of Life Insurance firms*

Mitsui Life Insurance

Hisakichi Maeyama Mitsui Life Insurance

147,000 12,201,300

Jan. 1934

Feb. 1934 Mitsui Bank Tokyo Electric Power

Onoda Cement Taiwan Electric Power

Kita Karafuto

Hokkaido Coal & Ship Hokkaido Coal & Ship

5 ,OOO

3 1 ,415

54,000

6,925

l,OOO

90,000

10,000

407,500 1 ,027,270

2,835,000

305,867

20,625

3,500,000

700,000


Yamaichi Stock Co.

Mitsui Bussan

Mitsui Trust Bank

Mitsui Trust Bank

Syndicate of Life Insurance firms


198,840 8,796,262

Total 345,840 20,997,562

Source :

Note:

Hiroshi Matsumoto, op. cit., p. 245.

this syndicate was consisted of Showa, Aikoku Chiyoda Insurance Companies.

Yasuda, Teikoku, and Dai-ichi Life

'6 The following chrono]ogical facts in this section depend upon Matsumoto, op. cit., pp. 242-259. 7T Mitsui Trust Co., Ltd. and Mitsui Life Insurance Co Ltd were established as semi-direct subsidiaries

,

in 1924 and 1927 respectively. In order to mobilize capital much more flexibly, Mitsui Gomei had estat~ lished these financial hrms in addition to the Bank,

1985] THE EMJ3RCENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM, THE CASE OF MITSUI 99

is, Mitsui Gomei had to change its raison d'etre to cope with the new environment. As Table 16 indicates Mitsui sold at this time ~ll.8 million worth of Oji Paper's stock, ~~4.6

million worth of Hokkaido Coal and Shipping's stocks and ~2.8 million of Onoda Cement's

stocks. These sales totaled about ~i~20 million. The reason why Mitsui Gomei sold so much of its Oji Paper Company stock was that Mitsui was trying to avoid being invohed in

the social indictment of the unprecedented paper trust. In 1933 Oji Paper Company, the

largest paper company in Japan, marged with the second and third largest companies, Fuji

and Karafuto. This merger also contributed to the anti-zaibatsu movement.

It must be noticed, though, that about ~5.9 million (28.1~) worth of these sales were

made to Mitsui's subsidiaries. In addition to the interlocking directorate, then, the inter-

locking shareholdings also appeared in Mitsui (see Table 16). These two important characteristics of the Japanese enterprise groups (kigy5 shadan) emerged at this time in

Mitsui.

(2 } The Emergence of Interlocking Shareholding

(a) The Expansion of the Aggressive War and the Increase in Capital Demands78: From

1931 Japan's aggression towards Manchuria expanded and developed into a full scale war

between China and Japan in 1937. This aggressive war brought special war demands to the Japanese industrial world. Mitsui's subsidiaries and affiliates, which had been frustrated

TABLE 1 7. TOTAL INVESTMENT OF MITSUl GOMEI IN THE 1 930s (flO Thousand)

Afiiliate

firms

Firms in Manchuria Mitsui & China Mining

Mitsui Bussan Others Total

193lsh-1937fh

1937sh-1940fb

1,233

l,506

~ 25.2 16,0

~

~

~ 405 8.3 1,900 38.8 1,246 25.4 114 2.3 4,898 100.0

575 6.1 6,065 64.3 997 10.6 284 3.0 9,427 100.0 Total 2,739 19.1 980 6.8 7965 55 6 2243 15.7 398 2.8 14,325 1000

Source: Hiroshi Matsumoto, op. cit., p. 257.

Notes: (!) th-the frst half of the fisical year.

sh-the second half of the fisical year.

C Affiliates frms: Shibaura Manufacturing Co., Tokyo Electric Co.

Tokyo Shibaura Electric Co., Oji Paper Co.,

Hokhaido Coal & Shipping Co., Dai Nippon Celluloid Co.,

Kanegafuchi Boseki Co., Nihon Seikosho Co, ,

Denkikagaku Co. @ Firms in Manchuria & China :

Manshu Gosei Nenryo Co., Manshu, Takushoku, Manshu Airline, Hokushi Kaihatsu, Chushi Shinko,

Chosen Ringyo Kaihatsu C Others : Tokyo Kaijo Kasai, Tokyo Kosoku Tetsudo, Nippon Aluminum,

Kanebo Jitsugyo, Toshin Storing, Teikoku Nenryo Kogyo R Rounded off figures under Yl0.000.

78 The following chronological facts also depend on Matsumoto, op. cit., pp. 262-75.

lOO

I 1933-1934 II 1936-1936 lll 1937-1938

IV 1938-1939 V 1939-1940

HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December

TABLE 1 8. SALES OF MITSUI S

Sales Amount of Affliates' Stocks

Total Amount

(f)

20,997,562

22,269,592

14,678,950

5,744,823

63,690,927

Sold to Direct Sub.

(Stock) (f) 345,840 5,945,292 302,04D 12,665,492 178,750 8,859,100 93,363 2,688,698

919,993 30,158,582 (47.4~)

(Stock)

99,425

198,676

l08,750 44, 1 67

(f)

Tosh in Storehouse

9,990,000

45 1 ,O 1 8 9,990,000

(49.0~)

(Stock)

123,400

123,400

Source: Hiroshi Matsumoto, op. cit., pp. 26~265.

TABLE 1 9. EXPENSE STRUCTURE

Personnel Expense Taxes

Communi- Consumer Miscel- Interest Tran s-

Expense laneous Donations Expense portation cation

1933 1,381,564 1,384,315 14 719 1 5,150

1 ,494,344 2,796,239 10,321 14,528

1934 1,957,566 4,768,206 9,072 14,122 1,457,864 2,039,422 32,180 15,049

1935 1 ,394,670 2,039,472 12,688 1 6,624 1 ,494, 578 1 ,823 ,050 34,03 1 1 6, 1 56

1936 1,251,004 1,880,395 12,951 13,067 1,910,546 1,937,223 2,896 14,319

1937 995,958 3,720,331 1,835 18,396 987,069 3,823,586 37,395 15,314

1938 2,333,638 4,207,536 1,785 17,497 1,084,785 5,872,807 1,393 19,481

1939 1,092,861 4,918,573 69 16,847 1,028,546 6,208,313 1,213 16,873

1940 1,013,561 9,871,894 696 16,548

32,621 1,240,974 83,852

32,999 1,633,788 43,947

35,754 1,345,771 38,570 33,350 38,337 763,784 4,010,934

42,669 674,669 795,316 32,062

25,689 42,942 671,602 626,01 8 24,980 43,989 532,882 511,710 32,730 46,936 752,521 646,917 37,595 41,704 620,050 467,335

47,060 736,505 428,971 36,315

50,304 556,269 597,341 597,341 51,136 635,326 262,785 262,785 51,617 581,617 740,536 1,307,878 42,6 1 2 561 ,299 1 ,62 1 ,898 1 , 384,473

70,028 585,206 245,355 1,154,689 source: Hiroshi Matsumoto, op. cit. , pp. 230-231.

during the Showa Depression, began to expand their activities by the end of the 1930s. Re-

sponding to this expansion, Mitsui Gomei, as the holding company, had to procure the capital which the subsidiaries required. Table 17 shows the total investments of Mitsui

Gomei in the 1930s. In the beginning, Mitsui Gomei resumed payment of the rest of the increased capital

of Mitsui Mining which had ceased in 1920. From 1934 to 1938, Mitsui Gomei paid ~~30

million to Mining. Soon after this payment Mitsui Mining decided to increase its capital

again, from ~~IOO million to ~i~200 million, in order to further expand its capacity to meet

the war demands. Mitsui Gomei had to pay about ~~49,6 million to Mining by 1940. Mitsui Bussan also decided to increase its capital from ~IOO mililon to ~~150 million in

1937. By 1940, Gomei had paid about ~~22.4 million. As Table 17 indicated, after 1937

when the war became full scale, Mitsui Gomei increased its level of investments to twice

1985] THE EMERGENCE OF THE PROTOTYPE or ENTERPRISE GRoul? CAPrrALISM, THE CASE OF MrrsUI

STOCKHOLDlNGS (1 933-1 940)

(f)

Nitto Takushoku

(Stock) (f)

891,000 19,800

Mitsui Mining

27,720,400

891,000 27,720,400 19,800

(Stock)

649,2co

Total

(f)

ro,997,562

22,269,592

25,559,950

5,744,823

27,720,400

649,260 102,292,327

(Stock)

345,840 3 02,040

321,950

93,363

649,260

1 ,712,453

101

OF MITSUI GOMEI (1933-1940)

Agri Deprecia- Deprecia- - Stock-De precia Real

Business tion losses tion Estate tion

(1) (3) Expense (2) Expense Others Total

284,669 276,367 25 1 ,471 320,077 12,907 5,300,313 2,619

1,314

(1)754,000 10,155,323 469 195 253 327 315 023 300,485 2,035,803 2,159

454,572 267,377 253,135 282,649 1 19,809 1 ,748,910 (2)900,000 12,197,680 631,412 305,040 272,633 298,713 308,339 101,036 10,311,778 3,675

476,989 290,ao9 243,165 255,360 40,695 1 ,150,118 (3)112, 139 7,577,054 698,229 289,089 247,137 232,539 148,521 6,355,917 6,327

6,815 8,423,085 461,636 247,983 239,966 218,407 2,888,288 89,000

- 358,265 207,402 270,409 1 ,250 (4)200,548 6,381,969 50,836 390,784 488,375 5,737 10,000 287 6,848,330 48,514 343,130 482,143 4,603 6,990,610 50,265 579,533 502,960 4,931 9,498,480 25,250

58,861 415,641 522,477 4,767 10,111,192 6,872

65,214 398,627 506,329 4,092 9,683,917 60,582 415,179 500,591 3,779 11,845,365

(5)329,759 76,642 400,530 565,42S 40,400 14,370,739

that of the pre-1937 period.

(b) The Collapse of Mitsui Gomei: The increasing capital demands caused by the war, as well as the donations, inevitably tightened the financial condition of Mitsui Gomei. First,

Mitsui Gomei began to sell its stocks of affliate companies, such as Oji Paper, Hokkaido

Coal and Shipping and Onoda Cement, as seen in Table 1 6. Then Gomei sold its stocks

of Shibaura Manufacturing, Dai-Nippon Celluloid (formerly Sakai Celluloid), Denki-Kagaku

(Electronics and Chemical) Company and Kanebo Cotton Mills. Table 18 is a list of the

stock sales. From this table we see that 47.5~ of the total of these stocks had been pur-

chased by Mitsui's direct subsidiaries (chokkei). In 1938. Gomei began to sell even those

stocks it held in one of its direct subsidiaries, Toshin Storing.

The revenues from these sales were applied to the rest of the increased capital of Mitsui

Bussan and Mitsui Mining. In other words, Mitsui Gomei had concentrated its investments

ro2 HITOTSUBASHI JOURNAL OF COMMERCE AND MANACEMENT [December

on the big three businesses, the Bank, Bussan and Mining.

In 1940, however, Mitsui Gomei sold some of the stocks of Mitsui Mining, worth ~i~27

million. At last, the increasing capital demands made it inevitable for Mitsui Gomei to sell

the stocks of its direct subsidiaries. But the sales of these stocks were limited only to direct

subsidiaries or executives of the Mitsui busines_s combines. Moreover Mitsui Gomei made

these sales on the condition that "the person who buys these stocks cannot sell to anyone

and Gomri can repurchase them any time."79 Although it was only a small portion of its

holdings, Mitsui Gomei had to give up its monopolized ownership over one of the big three

subsidiaries and the basic principle of family domination of the ownership of those firms.

In addition, the increasing expenses of Mitsui Gomei, especially the taxation and interest

payments, began to collapse the function of Mitsui Gomei as a holding company. Table

19 is a list of expenses from 1933 to 1940. Taxation had increased rapidly during the second

half of the 1930s, because the more Mitsui Gomei sold it sticks, the more it was subject to

taxation. Therefore. Gomei borrowed money from the Bank to pay in the increased capital

of Mining and Bussan. This increased its interest payments. Furthermore, in 1937, be-

cause of the war economy, the government increased corporate and income taxes. As a result of these increases, the dividends from Gomei to the Mitsui family would be subject

to income tax in addition to the corporate tax on Mitsui Gomei. During the 75th Diet in

1939 further increase in taxation proposals which would begin in April 1940 was passed.

This government decision had a serious impact on Mitsui Gomei. A decision was made to investigate the future financial state of Gomei.

According to the report of this investigation,80 in order to pay for these new taxes,

Mitsui Gomei would have to borrow money or sell its assets in every fiscal year. In addition

to this new tax, it revealed that if Mitsui Gomei had to pay the inheritance taxes for the

family members, it would go bankrupt. Under the private partnership system, over 50~

of the corporate profits of Mitsui Gomei and more than 70~ of the income of the family

members would be subject to taxation, so the Mitsui family would only get 1 5~ of the amount

of sales of its assets. In addition, because under the government regulations for the war

economy, it was difficult to earn extra dividends for the family.81

Furthermore, the increasing interest payments, as Table 19 indicates, had further

tightened the financial condition of Gomei. Thus it became clear that Gomei could no longer function as a private partnership. Therefore, in March of 1940, just before the en-

forcement of the new taxes, Mitsui Gomei gave up its holding company system as a private

partnership and merged with Mitsui Bussan. Only by merging with Bussan and becoming an incorporated firm could Mitsui avoid a huge liquidation tax on the dissolution of Gomei.82

Thus Mitsui Gomei, having controlled and coordinated the Mitsui business combine as the corporate office and as the holding company since 1909, collapsed in 1 940,

(c) The Emergence of Interlocking Shareholding: The increasing capital demands and

7B Matsumoto, op. cit., p. 265. 80 Ibid. , pp. 262-267.

81 Ibid., pp. 268-271.

82 Ibid., pp. 273-275. The Mitsui Bussan merger with Mitsui Gomei was newly incorporated in August of 1940. After the merger, the private association, "Mitsui Somotokata" was established to succeed the function of the central office of Mitsui Zaibatsu. And in March 1944 Mitsui Honsha (the central office) was separated and incorporated.

1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRJSE GROUP CAPrrALISM THE CASE OF MITSUI 103

the increasing taxation, as well as the anti-zaibatsu movement, had made it impossible for

Mitsui Gomei to concentrate its capital and to maintain its family domination over the

capital. In order to supply the capital demands which its subsidiaries required, Mitsui Gomei

sold the stocks of its affiliated (hokei) firms to its direct (chokkei) subsidiaries in the beginning.

Following this, Gomei sold the stocks of its direct subsidiaries to other subsidiaries and their

executives. As a result, one of the important characteristics of Japanese business groups

in the postwar period emerged in Mitsui zaibatsu in the 1 930s-that is, interlocking share-

holding. Unfortunately we do not have any detailed data on interlocking shareholding,

such as how these stocks were interlocked and in what portions they were shared, but at

least we can see that the concentrated capital was distributed among the subsidiaries, and

these stocks were interlocked in Mitsui's subsidiaries during the prewar period. In other

words, vertical control of the capital structure had begun to change into horizontal control.

VI. Concluslon

In this paper, the historical development of the managerial structure, the establishment

of Mitsui Gomei as the holding company, the role of Mitsui Bussan as the so~g5-sh6sha,

and the emergence of interlocking shareholding in the Mitsui zaibatsu were examined.

In the Mitsui zaibatsu, the basic managerial structures of the corporate office and each

subsidiary and the capital control system were complete in 1909, when Mitsui Gomei was

established. From the Meiji Restoration period until the establishment of Mitsui Gomei,

the leading professional managers had been struggling to create a managerial structure,

a capital control system, and the separation of family power from the professional manage-

ment. In this process, in order to control and coordinate the diversified and independent

subsidiaries, the interlocking directorate system was developed instead of the central cor-

porate office. In order to control and coordinate the capital resources, Mitsui Gomei as

the holding company was established. The interlocking directorate system meant hor-izontal integration of the subsidiaries including the managerial resources into the business

group, and Mitsui Gomei was to control them vertically by the capital resources within

the group. We can say that instead of the full development of the corporate ofiice which is com-

pletely separated from day-to-day business operation, the interlocking directorate, imple-

menting the coordinating function, was developed in the Mitsui zaibatsu.

In addition, Mitsui Bussan had developed into the so~gd-sh6sha by fully exploiting its

highly educated human resources, its international trading know-how, and facilities while

being supported by the government. In this development process, Mitsui Bussan pursued

two kinds of economy of scope : one was the economy of scope attained from the various

throughputs through the single set of human resources and facilities. The other was the

collective scale economies from the various sources. Because of this pursuit of the scope

economies, Mitsui Bussan had inevitably participated in all the activities of the industries,

upstream and downstream and domestically and internationally. Thus Bussan had played the significant role of industrial organizer. These pursuits of the scope economies and

the organizing activities were magnificently important for the rapid industrialization of

Japan, which had been a late-developing country in the competitive world market. Further-

104 HITOTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT

more, Bussan had integrated many companies into the Mitsui business combine through these organizing activities. Onoda Cement was a good example of this integration.

In the 1 930s, however, social criticism of the monopolistic behavior of the zaibatsu

firms and conflicts with the militarist and progressive bureaucrats stirred up the anti-zaibatsu

movement. Accompanying the expansion of the aggressive war in China, the capital de-mands of Mitsui's subsidiaries increased. These factors as well as increasing taxation made

it impossible to maintain the capital concentration and family domination over the capital.

In other words, in order for the Mitsui zaibatsu to pursue expanding business opportunities,

especially in the costly heavy industries, it had to give up its family domination over the

capital and had to mobilize public capital widely. This meant that the Mitsui zaibatsu

had to create a way to modestly mobilize public capital and to rationally manage the business

group as a whole. This was the interlocking shareholding system, in addjtion to the inter-

locking directorate. Because of the interlocking directorate and shareholding, the Mitsui

zaibatsu could mobilize public capital and make long-term strategies without losing stable

control over the group. Mitsui Bussan as the organizer complemented these interlocking

systems by controlling and coordinating the activities in many stages of the affiliate firms.

Thus the prototype of the enterprise group (kigyd-shadan) had already emerged before World

War II.83

My hypothesis is that rationale and usefulness of these systems had been recognized

by the Mitsui people through the many business activities before the war. Therefore, as

soon as the Anti-Trust Law was relaxed in 1 949, former Mitsui subsidiaries and affliates,

which had been dissolved into many small firms, began to form a group again.84 This newly

formed the Mitsui group, called kigy5-shtidan was quite different from the family dominated

prewar zaibatsu. Instead of vertical and centralized control of the capital, in newly formed

kigy5-shadan the interlocking shareholding was further developed into a horizontal and

decentralized capital control system. Because of this characteristic, the Japanese enter-

prise group could focus its long-term strategy on developing the pie as a whole, rather than

on short-term oriented strategies primarily concerned with the individual interests of in-

dependent stockholders. Of course, these post war process of the group formation must

be analysed much more deeply by historians. This will then be my next work.

At the last I must admit that this paper has a serious defect though. It did no deal

with the role of the bank in the Mitsui zaibatsu. Time and space for this paper prevented

my discussion of it. This will be also my next work.

HITOTSUBASHI UNIVERSITY

88 According to S. Yasuoka, "The tradition of Family Business in the Strategic Decision Process and Man-

agement Structure of Zaibatsu Buniess; Mitsui, Suntitomo, and Mitsubishi," K. Nakagawa, ed., op. cit., in addition to the Mitsui zaibatsu, in Mitsubishi and Sumitomo the same prototype of the business group emerged during World War II.

8~ K. Shibagaki, Mitsui-Mitsubishi no Hyakunen (The One-Hundred Year History of Mitsui and Mitsu-bishi). Chuo Koron, Tokyo, 1978, pp. 155-175. After the war, Mitsui Honsha was abolished and Bussan was dissolved into about 200 small fiuns. After the reluxation of the Anti-Trust law, however, these firrns formed a large group again soon.

the emergence of the prototype of enterprise group ......the wealth accumulated through the business...

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