NOVEMBER 21, 2020When you look at a supermarket shelf, there are a myriad of brands–but they could very likely be under the same holding company. Beyond supermarkets, many of the brands and companies we encounter daily tend to be connected in one way or another. Today I would like to explore the relationships between subsidiary and parent companies–with the top 3 former zaibatsus of Japan: Mitsui, Sumitomo and Mitsubishi groups. They are now Corporate groups with what you call a 'General Trading Company' at its heart. I laid out network graphs to visualise these conglomerates' stakes in various industries.
I was always curious about why KFC only offers Pepsi rather than Coca Cola. It turns out that KFC became Pepsi's subsidiary company when it acquired KFC in 1986. There are different types of holding companies, a pure holding company is formed solely to own and control the stock of other companies while a mixed holding company holds its subsidiaries’ stocks while also running its own operations. Some participate in the day-to-day business of its subsidiary only.
According to the report published by Japan’s Ministry of Finance in 2016, for just pure holding companies, there are 485 companies(a 7.3% increase from the previous year) confirmed. 8% of them are in construction, 23% in retail, 20% in manufacturing, 9% in financial services, 11% in service while the remaining are made up of companies of various other industries. They generated gross sales or a combined operating revenue of approximately 3,506 billion japanese yen.
Beyond just the relationship between a parent and a subsidiary company, I will focus only on members of the former Zaibatsu's Informal Meetings–these include companies that were subsidiaries in the past but have gone independent now. The Informal Meetings are a very special feature; they are held Bi-monthly, it is like a fraternity where the CEOs of the key subsidiary companies meet up for information exchange. This strengthens the whole group: they come from vastly different industries–TV broadcasting, oil refining, chemicals, steel, intelligence, trading, wholesale etc.
The modern Sumitomo Group is founded in the 17th Century Masatomo Sumitomo when he established a book and a medicine store in Kyoto. He left a book on commerce called the 'Founder's Precepts' which is still in the heart of Sumitomo's management strategies today.
Around the same period, Riemon Soga, Masatomo Sumitomo's brother-in-law, learned Western methods of copper refining in Kyoto where he, after much pain, perfected techniques that allowed the extraction of silver from copper ore, something Japanese technology had not previously accomplished. The smelting and smithing business was moved from Kyoto to Osaka by the late 17th century. At that time, Osaka was at the heart of Japan's Copper industry and Soga passed control of the company to his son Tomomochi who managed its transformation into a major trading house during the Edo period. Sumitomo began to export copper, import silk, and provide financial services.
The modern Mitsui Group is founded in the 17th Century by Mitsui Takatoshi when he established a Kimono store or Gofukuya. Mitsui Takatoshi left Mie Prefecture for the Capital Edo(modern Tokyo) and established the said Mitsui Gofukuya in 1673 which would later become Mitsukoshi. He founded Kimono stores in Kyoto and Currency exchange stores in Osaka and Kyoto respectively.
However, the most noteworthy part is his innovation in terms of commerce and payment. Traditionally, gofukuyas provided products made to order; a visit was made to the customer's house (typically a person of high social class or who was successful in business), an order taken, then fulfilled. The system of accountancy was called "margin transaction". Mitsui changed this by producing products first, then selling them directly at his shop for cash. At the time, this was an unfamiliar mode of operation in Japan. Even as the shop began providing dry goods to the government of the city of Edo, cash sales were not yet a widespread business practice. This convenience became a widespread hit among consumers and brought about great profit for Mitsui. Mitsui was later successfully granted rights as the exclusive money changers for the shogunate, further helping the company amass great wealth.
The modern Mitsubishi Group is founded in the 19th Century by Iwasaki Yatarō with his shipping business. He received the protection from the Meiji government and monopolized the shipping industry. He later traded camphor oil and bonito flakes, specialties of his hometown Tosa, for ships, weapons and ammunition. He later moved to Osaka where he displayed incredible talent in shipping and trading.
It later diversified into other fields related to shipping. It entered into coal-mining to gain the coal needed for ships, bought a shipbuilding yard from the government to repair the ships it used, founded an iron mill to supply iron to the shipbuilding yard, started a marine insurance business to cater for its shipping business, and so forth.
Behind the many companies and brands in the world lies complicated relationships and links–Which is why I took the challenge to make a network graph of such relationship today. With it, we can compare the current state and history of the 3 big corporate groups of Japan. It is worth a thought why the specific subsidiary companies are chosen out of thousands more to attend the informal meetings.