Mexico's dry and desolate Baja peninsula has few natural resources other than consistent sunshine and plentiful ocean. These two seeming afterthoughts, however, are the only raw materials needed to begin a salt-harvesting operation.
Salt (NaCl) is essential to food, chemical and plastics industries. Shipping magnate Daniel Ludwig, owner of National Bulk Carriers and one of the richest industrialists in the world, knew this in 1957 when he opened a massive salt extraction plan near the dusty fishing village of Guerrero-Negro. And industrial-intensive Japan knew this when a Japanese trading company sent its ships to load up with Guerrero-Negro salt as soom as the plant was working.
During the 1960's, a Japanese company, Mitsubishi International, became Ludwig's biggest buyer. Then, in 1973, the Japanese company did what Japanese companies are known for doing: It bought the entire project. Mitsubishi invested its own $18 million to buy the land, machines and inventory, sent itown personnel to manage the operation and dedicated its own ships to transport the salt. Today, Exportadora del Sal S.A. of Guerrero-Negro is the largest solar evaporation salt plant in the world, processing approximately 5.5 million tons annually. The Japanese market receives two-thirds of the salt; the United States and Canada receive the remainder.
This is one typical way in which a Japanese trading company operates. Because of its global office network, Mitsubishi was aware that Ludwig was open to an offer. Because of its career trade experts and access to massive amounts of working capital (Mitsubishi consistently is rated A-1 by Standard & Poor's), Mitsubishi had the expertise and financial wherewithal to offer a packaged deal. Being a Japanese company, Mitsubishi had access to the highly restricted Japanese domestic market. And being politically flexible, Mitsubishi was sensitive to the Mexican government's desires for sovereignty, so two years ago, it automatically reduced its ownership to 49 percent.
If you are a Japanese trading company, you come equipped to deal with the richest man in the world.
The Guerrero-Negro purchase is one of a long line of aggressive post-World War Ii business deals by Japanese trading companies. "I'd say that's indicative of the way these Japanese companies operate," said Bill Dickerson, who followed the salt deal as director of the Washington-based Salt Institute. "They have money, are spread out into everything and always are on the lookout for a deal."
The only nations with comparable trade networks are South Korea and Great Britain. But theirs don't approach the well-oiled, far-flung scope of Japan's. The United States, which increasingly is turning to foreign trade, has nothing resembling Mitsubishi.
"There are permutations of the Japanese trading houses," observed John Caldwell, U.S. Chamber of Commerce vice president for international affairs. "Probably the closest is IT&T with its multidivisional capabilities. There also are small, one-ortwo-man trading companies here and there. But certainly nothing compares to Mitsubishi or the others."
Sensing the need to provide just such a system to facilitate overseas ventures, elements within Congress, the Commerce Department and the business community are sponsoring legislation to pave the way for at least one flexible independent U.S.-based trading company. Sen. Adlai Stevenson (D-Ill.) is preparing legislation to encourage formation of American trading companies, while Sen. John C. Danforth (D-Mo.) is seeking to amend the Webb-Pomerene Act of 1918 so that it more clearly allows formation of export trade associations. Stevenson, Danforth and Sen. Abraham Ribicoff (D-Conn.) are pushing for creation of a Cabinet-level Department of Trade.
"Our global marketing is weak, especially when compared to the Japanese trading companies and German chambers of commerce," Stevenson said recently. "We ought to permit trading companies which could represent small as well as large American businesses throughout the world, absorbing exchange-rate fluctations on a day-to-day basis and meeting foreign competition everywhere."
But the scale and success of the Japanese operations likely cannot be matched simply by overlaying a network of American offices and "trade experts" on a map of the world. Much of what constitutes a Japanese trading company - or sogo shosha - is rooted in Japanese social tradition.
Mitsubishi, for example, began in 1868 as Coastal Shipping Co. at a time when Japan was emerging from two centuries of self-imposed isolation. It had become a vertically integrated conglomerate - or saibatsu - by the early 20th Century, sending ships throughout Japan's sphere of influence in search of raw materials for home factories.
After World War Ii, the zaibatsu were dispersed through U.S.-directed trust-busting. Mitsubishi International was broken away from Mitsubishi Heavy Industries, Mitsubishi Bank, Mitsubishi Electric and 24 other core companies in its financial clique. But loose affiliation persisted, strengthened by the industrial exigencies of the Korean War.
In the past two decades, Mitsubishi has grown so large that it can fill international orders for an amazing variety of products, from shrimp to nuclear power plants. It often uses centrally located procurement centers - one of long standing is at the Hague - to gather goods. Its economy of scale is so great that it can organize into separate corporate structures on particular projects, or become the general contractor or it can flex into joint-venture or subsidiary arrangements.
Mitsubishi is prime contractor on a $6 million canning factory in Venezula. Mitsubishi and Dutch Shell cooperated on construction of a $1 billion liquified natural gas facility at Brunei.
The size of Mitsubishi's working capital enables it to assume risks that normally frustrate smooth international commerce. For example, Mitsubishi can buy a product from a manufacturer, hold it until all international credit complications have been settled and then complete the transaction. It also can assume responsibility for transportation and even invest in infrastructural projects to facilitate a deal. Because of the demand for oil equipment in Mexico, Mitsubishi and Mitsui are expanding the harbor at Salinas Cruz.
Because of its size, Mitsubishi can establish a presence in developing markets and detect business opportunities long before bids are let, responding to business intelligence by instantaneously messaging its global offices. An in-house Telex system carries up to 20,000 business messages a day among 115 cities. And, as in the Guerrero-Negro salt deal, procurement, financing, shipping, insurance and company management can be gathered under the Mitsubishi aegis.
Japanese industry has grown along with the nation's economy during the post-war period. Last year, the top six of the 15 sogo shoshas (Mitsui & Co., Mitsubishi Corp., C. Itoh & Co., Sumitoma Corp., Marubeni Corp. and okura & Co.) had trade volumes exceeding $10 billion each. This is the primary means by which Japan exploits foreign resources and develops new markets and, not incidently, maintains a trade surplus with the United States and most of the nations of the world.
But the sogo shoshas don't appear to be the sole cause of tradeimbalance. In fact, Mitsubishi officials point out that the U.S. subsidiary last year sent $1 billion worth of Japanese goods to the United States, while moving $2 billion worth of U.S. goods to Japan. "If it wasn't for the trading company, the balance would be worse," and Dipak Roy, assistant manager of Mitsubishi's Washington office. "The imbalance seems to be mainly the result of direct sales of Japanese consumer goods in sales of Japanese consumer goods in the American market, and sogo shosha does no direct marketing."
Sogo shoshas are typically Japanese: well organized, dealing in high volume at low profit, staffed by fervently loyal career workers, and closely tied to each other and to the Japanese government.Longstanding antitrust and anticollusion sentiments which exist in the U.S. are absent in Japan. And because of the homogeneous and insular nature of Japan, national interests and trading company interests usually coincide.
Mitsubishi's profits usually don't exceed 2 percent of the total sale, thus encouraging long-term business relationships. Sometimes the company even will sustain a loss when a country is experiencing economic difficulty, hoping for favorable status in the future. A trade deal signed in March with Peru - a country suffering from the worldwide oil shock - called for twice as many puchases of raw materials from Peru as Japanese exports to the country.
"A sogo shosha has to be prudent," said Mitsubishi's Roy. "It has to have a good long-term relationship with buyers, sellers and host countries. And it has to maintain quality control. In the U.S., I don't see this type of structure emerging."
An American firm interested in overseas sales usually must set up an international division. This can be an expensive commitment, expecially for a small, inexperienced company confident of nothing past short-term sales.
A search for the U.S. counterpart to the sogo shosha turns up only businessmen variously calling themselves "manufacturers' representatives," "purchasing/procurement agents" or "import/export authorities." These titles often are employed by persons who are little more than semiknowledgeable promoters.
Several free-lance trading companies do exist, particularly on the East Coast. But these are specialized. WJS Inc. and Welt International, both of Washington, and Satra Inc. of New York, for instance, deal mainly with the state-controlled economics of Eastern Europe and the Soviet Union. Welt, however, claims it is embarking on Chinese and African trade and hopes to expand further. But even a comparison between this company and Mitsubishi shows how large the gap is.
Mitsubishi-Washington, on the one hand, has half a dozen professional traders working in clean, efficient quarters at 1730 Pennsylvania tave. NW.Secretaries take business calls. Telex operators route international message traffic. Long-term negotiations unfold quietly. The office has a low-keyed, professional air with little evident self-promotion. When Japanese Prime Minister Masayoshi Ohira visited Washington recently, Mitsubishi officials dined with him.
Welt International, on the other hand, has only two full-time traders, Leo Welt and his protege, Michael Rae. Other employes serve several functions in what Welt describes as his "mini-congomerate." Business is conducted in a relatively cramped suite at 1511 K St. Welt's main conduit of business intelligence is contacts from his years of international trading, supplemented by wheeling and dealing at embassy parties, trade fairs and business conferences.
Lately, some American firms have been linking themselves with sogo shoshas to take advantage of their global marketing network. Diamond Shamrock recently signed a 10-year agreement with Mitsubishi for exporting vinyl chloride monomer, an ingredient in polyvinyl chloride. Mitsubishi initially plans to sell the compound in Southeast Asia and later in the Japanese market. Mitsubishi also is negotiating with an American hotel chain to establish a series of resorts in China.
But a drawback to broader-based American-Japanese business pairings is that, because of the sogo shoshas' long-time "Buy Japan" orientation, American goods and services are procured only when Japanese firms cannot fill the order. Japanese trade officials complain that American firms have a casual attitude toward foreign sales and slap high mark-ups on goods for export. Roy said an attempt to establish a procurement center in the U.S. in the early '70s was a "miserable failure."
To assist American firms thinking of overseas expansion, the Commerce Department, Small Business Administration, Export-Import Bank, Overseas Private Investment Corp. and U.S. Chamber of Commerce offer counseling. The Commerce Department, in particular, attempts to monitor bids and tenders via State Department cables. But none of these organizations appears equipped to provide the informal briefings, timely updates and inside tips necessary to achieve a competitive advantage against a sogo shosha in a foreign country. CAPTION: Picture, John Connally: candidate seen eagerly milking a latent protectionist attitude. By Larry Morris - The Washington Post