Title
Author(s)
Citation
Issue Date
Type
The Emergence of the Prototype of Enterprise Group
Capitalism -The Case of MitsuiYonekura, Seiichiro
Hitotsubashi journal of commerce and management,
20(1): 63-104
1985-12
Departmental Bulletin Paper
Text Version publisher
URL
http://hdl.handle.net/10086/6359
Right
Hitotsubashi University Repository
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 intelest 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. Wakabayashi 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), Daiyamondosha, 1976, pp. 48-50.
64'
[December
HITOTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT
Zaibatsu
Kigy6-sh dan
Family
Group
Holding
Member
Company
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 kigydshtidan (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 strategy without concerning short term interest of independent shareholders.4
In this paper, in order to understand when, how and why these similarities and differences 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 diversification from the early stages of industrialization. This is because Japan had to concentrate 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 diversification.5
The Mitsui zaibatsu diversified at the beginning of the Meiji era (1868-1912) and struggled 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 wealthiest 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 nationwide 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
HITOTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT
[December
ods.8
(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 providing 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 opening, 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 management. 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. 109120).
' 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 emasculated 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 connections,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 government 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 competitive 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 million.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 Nakamigawa), 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
TABLE I .
THE DISTRIBUTION OF THE PARTNERSHIP IN 1 893
Bank
Bussan
x
X
x
Main House Hachirojiro
Main House Saburosuke
Branch House Fukutaro
Branch House Morinosuke
Branch House Takenosuke
X
x
x
x
Shigeaki Yasuoka, Zaibatsu Keiseishi no Kenkyu, p.
403 .
THE INTERLOCKING DIRECTORATE IN MITSUl IN 1894
Mitsui Motokata
Chairman
Managing-Conunitteeman
Committeeman
Mitsui Bank
Mitsui, Hachiroemon
Nakai, Sanpei
Managing-Director
Nishimura, Torashiro*
Director
Pres i dent
Masuda, Takashi*
Minomura, Risnke
Mitsui Bussan
Managing-Director
Director
Source :
Mitsui, Motonosuke
Masuda, Takashi*
Mitsui, Yonosuke
Magoshi, Kyohei
Ueda, Yasujiro
Nakamigawa, Hikojiro*
Mitsui, Takayasu
Nakamigawa, Hikojir0$
Nishimura, Torashiro*
Masuda, Takashi*
Nakamigawa, Hikojiro*
President
X
X
Branch House Younosuke
Branch House Tokuemon
TABLE 2.
Gof ukuten
x
House Hachirouemon
House Motonosuke
House Genuemon
House Takayasu
Spouce:
Min ings
x
Head
Main
Main
Main
[December
HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT
Mitsui Mining
President
Mitsui, Saburosuke
Managing-Director
Dan, Takuma
Director
Asada, Sauemon
Mitsui, Hachirojiro
Masuda, Takashi*
Nakamigawa, Hikojiro*
Shigeaki Yasuoka, op, cit. , pp. 406 09.
* means "interlocking."
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, Nakamigawa 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 corporate 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
莇■o庖伽（Family Comcll）
Famlly M‘耐bor昌目nd Direoto周
〃o他加他
∫伽刎肋伽三
｛The Admini5㍑窩ti、・e Office of the Family〕
工Board of Dlr㏄to祀〕
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
L
〉
Shibau胞Mmufacturmg
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
shinmachi
Snk Spi nmg hl,us
O』；｝…，一｝q；1L貝ni［n一刊｝M111o
Source: Kazuo Shibagaki, Nihon Kinyu Shihon Bunseki, p. 210 and Shigeaki Yasuoka, op. cit., p. 465.
15 Ibid., p. 419.
70 HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December
ating companies to make a policy for the Mitsui business combine as a whole. Nakamigawa's industrialization policy, for example, confiicted with Bussan's commission business
policy because cotton-spinning mills, which were important customers for Bussan's international 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 conservative 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) :
Five Honke (the main houses) :
Five Renke (the related houses) :
23.0
l 1.5
3.9
x 1=23.0
x 5=57.5
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 October 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 management 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 aggressively 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 appropriate central corporate ofnce for its business combine. In order to complement this weakness, 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)
20,405 100
25,064 100
29,048 1 1 6
18,469 91
35,232 173
49,388 197
72,827 357
86,162 344
85,618 420
92,233 368
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 Matsumoto, 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 unlimited partnership of eleven families wherein family domination over capital was maintained. 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 professional 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 management of every firm.
Again the president of Mitsui Gomei (the holding company), Hachiroemon Mitsui
FIGURE 2. THE ORGANIZATION OF THE MITSUl GOMEI IN 1914
M1TSUI GOMEl PARTNERSHIP
｛Holdl㎎Comp日町｝
THE DlRECTORATE
Ch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〕
K皿mi｝osh1M固冨hlm訓Sec日on Chief of Bu鶉邊n）
B
A、 U
N｛ S
（
S
■ NA
M
ヨ
K
1
N
1
N
G
'
24 Matsumoto, op, cit., pp. 62 3.
T
0
S
H
I
N
SHIBAURA MFG．
0Jl PAPER MILL
SAKAI CELLuLOID
0NODA CEMENT
HOKKA工DO COAL MlNlNG
田nd SmPPlNG
DENKl KAG＾KU
KANEGAFucHI COTTON MILLE
V ＾ 、1口〔＾ロー1〔u− r（TT（、一 ＾’1− 1 1
and etc.
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 companies.
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, performance 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 Bank
Mitsui Gomei
President
Execut i ve
Mitsui, Hachiroemon
President
Mitsui, Hachirojiro*
Managing Director
Mitsui, Takayasu*
Flayakawa, Senkichiro*
lkeda, Shigeaki
Masuda, Takashi
Mitsui, Gen
Mitsui, Tokuemon*
Dan, Takuma*
Director
Yoneyarna, Umekichi
Mitsui, Morinosuke
Dan, Takuma*
Asabuki, Eiji*
Controller
Mitsui, Saburosuke*
Mitsui, Takayasu*
Counselor
Controller
Councillor
lida, Yoshikazu*
Hayashi, Ken
Mitsui Takenosuke
Asabuki, Eiji*
Ariga, Nagafumi
Ono, Yujiro
Mitsui Mining
Mitsui Bussan
President
Managing Director
Mitsui, Hachirojiro*
lida Yoshikazu*
President
Managing Director
lwahara, Kenzo
Yamamoto, Jotaro
lida, Yoshikazu*
Fukui, Kikujiro
Mitsui, Younosuke
Komuro, Sankichi
Yamada, Naoya
Okamoto, Kan-ichi
Mitsui, Motonosuke
Dan, Takuma*
Watanabe, Senjiro
Director
Mitsui, Saburosuke*
Controller
Mitsui, Gen-emon*
Hatano, Shougoro
ffayakawa, Senkichiro*
Asabuki, Eiji
Mitsui, Tokuemon*
Dan, Takuna*
Controller
Source :
Hiroshi Matsumoto, op. cit. , pp. 4( 48 & pp. 58-59.
* means "interlocking."
: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 promotion 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 coexistence of family management and salaried managers in the Mitsui zaibatsu. The organizational 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 structure of the
TABLE 5. THE TOTAL ASSETS OF MITSUI GOMEI IN 1911
Items
(1) Securities
Amount
51,182,390
(72.65
20,OC0,000
20,000,000
5,000,000
7CO,OOO
l,171,000
2,079,140
(28.4 O
Onoda Cement Co. Ltd.
1 68,750
Sakai Celluloid Co. Ltd.
l,307,950
652,950
102,500
(0.2 )
(1.9 )
(O.1 )
(2) Real Estate
2,310,849
(3.3 )
(3) Buildings
l,437,879
(2.0 )
15,562,742
(22.1 )
9,569, I lO
(13.6 )
Mitsui Bank Co. Ltd.
Mitsui Bussan Co. Ltd.
Mitsui Mining Co. Ltd.
Toshin Storing Company Co. Ltd.
Shibaura Electronic Mfg. Co. Ltd.
Oji Paper Mill Co, Ltd.
The Bank of Japan
Others
(4) Others
loan for the Mitsui Mining
loan for the Oji Paper Mills
deposit in the Mitsui Bank
others
Total
(28.4
)
(7. I
)
(1 .O )
(1 .7 )
(2.9
(0.9
3,000,000
2,318,371
675,261
70,493,850
)
(4*3
(3･3
;)
)
)
(1.0 ;)
(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.
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葦
75
TH］…EMl…RGENCE OF THE PROTOTY朋0正ENτ1…RPR1SE GROUP CAP1TALlSM．THE C＾SE OP MlTSUI
1985
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[December
HlTOTSUEASHI』0URN＾L OF COMMERCl…AND MムNAG旧M旧Nτ
76
一一N寸寸寸寸【門n同寸［いトoo卜oo，oNN〔寸〔苛門
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
creased from
50 to
:88.7 million. By the end of 1916, the paid-in capital of Gomei in-
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 analyzed 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 subsidiaries-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 expansion 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 business 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
'" The description and data of this section owe to Matsumoto, op, cit., pp. 162-66.
200
78
［D㏄ember
HITOTSUEASH1』OURNAL OF COMMERCl…AND MANAGEMENT
TABLE8．
TH正PR0p0RTl0N0F M1TsUl G0ME1’s SEcURmEs HELD BY1Ts
SUBsIDIARlEs（Cんo肋3’）AND AFHLIATEs（月o加f）
Teml
Ye皿
AKliates
％
％
1
1910．1
40，700，㎜
2
．7
柵，700，㎜
3
1911．1
40，700，㎜
4
．7
40，700．000
5
1912．1
45，700，OO0
6
．7
7
1913．1
45，700．000
8
．7
45，700，OO0
9
1914．1
45，700，OO0
10
．7
11
1915．1
55，700，OO0
12
．7
55，700，OO0
13
1916．1
55，700，O00
14
15
16
17
18
19
．7
55，700，㎝
1917．1
55，700，OO0
．7
60，700，OOO
1918．1
20
．7
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
．7
1919，1
21
1920．1
22
23
24
25
26
27
．7
1921．1
．7
1922．1
．8
1923，2
80〃Cεj
（c）Tota1
（b）ノ（c）
（a）／（c） （b）Bokei
（a）Chokkei
Subsidia工ies
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
45，700，㎜
55，700，㎜
210，982．250
213，332，250
6，161．230
13，1
46，861．230
6，626．830
47，326．830
6，841．930
14，0
13，8
14，4
6，898．180
13．1
52，598．180
7，715．350
14，4
53，415．350
7，756．600
14，5
53，456．600
8，244．700
15，3
17，6
15，3
53，944．700
67，112．937
35，867．180
17．O
18，3
19，2
21，7
20，7
20，3
13，0
14，5
14，8
17，5
12，5
14，5
38，2工1，一45
15，3
38，547．995
15，5
38，654．995
15，5
38，495．995
15，4
15．6
6，519．080
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
39，395，682
47，219．080
47，541．930
55，468．850
65，793．637
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
Hiroshi Matsumoto，op．c〃．，p■38．
TABLE9． CApITAL INcR旧AsEs AND THB ExTRA DIvIDENDs
（￥＝million yen）
Datc
Subsidiary
Amount of Date
Capital
Subsidia1＝y
to Gomei
Increases Paid by
Mitsui Gomei
Oct．1917
Feb．1918
F6b．1918
Ju1．1918
Jul，1919
Jan1920
Jan1920
Jan1920
Amou皿t of
1三xtra Dividcnd
BuSSan
￥50
Mini口g
〒1O．5
Bussan
Toshin
Mining
〒50
￥10．5 Jun， 1919
Bank
〒11
Bank
Y23．578 0ct，1919
Bussan
Mining
予30 Nov．1919
Bussan
Mining
予30
予12
Mi皿ing
予12，5
Total
予3 May1918
予19．5
〒149，078
（a）
Tota1
￥113．5
（b）
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 dividends from those securities. In the first half of fiscal year 1922; 86.8
(about
million) of total revenues were from dividends, 5.8 from interest on bonds, 3.6
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.
57.24
27.70
31.59
12.20
22.83
5,008,675
2,770,000
9,872,500
637,500
8,619,937
8.75
675,000
7.50
1,183,950
(Electronics & Chemical)
Kanegafuchi Boseki (Kane-Bo)
Co. Ltd.
Source: Hiroshi Matsumoto, op, cit., pp. 142-153.
note : * in June 1919.
I0.9
from
80 HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December
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 Storehouse. 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 capital, 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 g6sh5slla 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 important 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 producers.
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)
Ex port
Commodities
Quantity
Sales
Coa I
Raw silk
776 tons
25,398 papers
Tea
N.A.
(f)
3,837
49,100
4,358
Woolen
N.A.
Customer or Destination
Shang-hai (China)
for Tokusumi
U.S.A.
57,295 (10.5 )
Import
3 02
Steam engine
Flannel
5,163
31
Gold
Go]d
Hemp bags
the army
the army
the army
the army (Konoe-kyoku)
consignment
Bussan
l 1 4,525
Glass bottles
101,420
l0,142
5,399
1,839
Petro]eum
Mitsui Gumi
consignment
238,841 (43.8 )
Domestic
Rice
Copper coins
Leathers
52,665 koku
1 5,000 yen
Coal
Army socks
Misceffaneous
227,699
14,526
to Ministry of Finance
consignment
266
622
for Kyoto Prefecture
the army (Konoe-kyoku)
187
5,364
for lzu islands
248,864 (45.7 )
Total
Net profit
Source: Kohon Mitsui Bussan Hyaku Nen Shi, p. 79.
3B Nihon Keieishi Kenkyujo, op. cit., p. 44.
545,000 (lOO.O )
7,922 (1.45
)
[December
HlTOTSUEASHI JOURNAL OP COMMERCE AND MANAGI…MI…N工
82
いト寸．一い①、一
い専．冨α．一
蓄［、遣寸、。。一ト貢．。。。・い．︹
＄寸、s．o、一
8ト．s旧
sト．寸ト
いト◎．等 −
○豪、o専、一
一専．：寸
岨トN、いNo．N
．o8．o8
○当．賓︹ ． N
豪卜．亭
竃ト．竃
箒い．卜菖．N
0 竃 、 s 卜 、 寸 尋ト．oG、−
鶉ち↑ 自o℃E0■
−白﹄冨毒
石’
8o．象卜
尋門．トs
09．いミ、一
sひ。sN
oo−oo8N．oS．一
8N，sooい湯．卜s
ひs、い菖
．寸。o．o
．ミo
ω−〇一一−oも︺−自吻
昌冒一gδ−
﹄毛曽壷8身
−εo↑
．§、．OOO︹コ︷︶﹃目O︶︸−‘ω−O−①︶−自O占−Z ・．“u﹄畠ξ
等一．s一 。o＄．s
﹄毘易
冒o岩oo
吻O︸お宙﹄
ω−討−o仁口．、﹄ω冒−一U討妻
s↑
冒卜、等椚
遣寸．os
oo貧、oo蟹
いトひ．oα
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﹄g雷
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sい．い。o︹
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血自do﹄︷o血。血自宙o臼
己06
亀o．o蟹
＝一、鶉門
トいo、蟹
α富
oo〇一．〇一
ニト．岨s
豪ト．冨
卜。oい、卜害
宙一宙吻︵︶ o、メo］ド
一二、6N
．s日閏＜↑
−〇一〇ン
由昌宙一
。。冨、o3
ms、尋
いトo．等−
いs．sい
sひ．鶉
卜s．旧s．N鶉F．8Φsd、旧トoo、−菖N．ひs．N
o﹄o︶閂 o助o︷国
亀N．。o卜卜
菖。。．い。。N
o．oべ．o； 湯ひ．□。0N寸3、毫o．一
s卜．ミ
○等．；
専ト．ト一
。oG、ト萬
N賢、尋N
−轟宙之
コ霧
卜トひ．o。・寸
−〇一記︸
○盲o
吻＾7︻＜吻吻箏因−∋吻﹄−； −O閉四■＜ω吻吻Oメ︷︶円＝﹂［
目﹄暑o
os．いs
いト一．ひト寸8ト．べs
いs．8
OOO，ON ON旧．①−−
o8．o203、湯oo 家寸．寸畠、N0s
目o目o＝
ぎo占
ooo，oα門 oいN．oいoo
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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 expanded in many fields of trade.
In the 1880s, in order to acquire foreign currency for industrialization, the Meiji government 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 pioneered 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 concentrated 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.
84 HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December
in Japanese globalization and industrialization. Mitsui Bussan along with the Mitsui zaibatsu 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 Bussan'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
Source : Nihon Keieishi Kenkyujo ed.,op, ar p 232
:6 Ibid., pp. 149 159
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
)
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 nationalization 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 industrialization.
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.
86
HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December
TABLE 1 4. BUSSAN'S SHARE OF TOTAL IMPORTS AND EXPORTS IN JAPAN
(Yl,OOO,
Export
1897
1898
1899
1 900
1901
1 902
Im port
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
l 903
289,502 33,043 1 1 .4
1904
1910
319,261 43,764
321,534 51,604
423,755 71,409
432,413 82,107
378,246 71,232
329,455 85,241
457,086 102,570
1911
455,734 1 1 1 ,644 24. 5
l 905
1 906
1 907
l 908
1 909
13.7
16.0
16.9
19.0
18.8
25.9
22.4
Total Bussan
Total Bussan
219,301
277,502
220,402
287,262
255,817
271,731
317,136
371,361
488,538
418,784
382,436
443,256
435,332
491,692
33,540 15.3
38,788 14.0
40,015 1 8.2
45,248 15.8
37,219 14.5
44,076 16.2
47,956 15.1
55,285 14.9
84,769 17.4
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
43,972
52,192
65,454
67,341
11.5
11.8
15.0
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
842,539
926,880
814,503
663,541
897,663
985,803
136,373
145,826
186,557
173,639
161,523
189,641
224,980
16.8
17.3
20.1
21.3
24.3
21.1
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 international 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 distribute 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 economies, 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. 4363 .
'* 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 involved 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
ProducYScopeImport
..-> Product scale ' >
g5 SogcGlobalSoLEx/;p
? Various
Various Export
( shosha
- scope
sho sha
Scope
Producers
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 Califomia Press, 1976). But risk-reduction by distributing risks over many transactions contradicts with economies of scale itself. I think it is very difricult to explain the emergence of sogo-shosha from only the concept 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.
88 HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December
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 explanation 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 joining 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 Keieishi 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 selforganizing 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 compete 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 introduced 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 authority 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 accounting 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 sometimes 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 annually 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.
CONTROLLER
MANAGlNG DIRECTOR
宛固ω丙＞カO＝ω向O﹂﹃H◎Z
OO∈ZO−−ω向O↓−02
OO＞［↓宛＞U向ω向O↓HO乞
Ω目Z向勾＞−＞句勾＞Hカωω向O↓−OZ
勾向O向−∼↓ω節U−Oo耐ζ宛ω向H≦向Z↓ωω−O↓−O之
＞OOO⊂2↓−老Ωω向O↓−Oズ
The organizational chart in 1905
ordinated its branches and their various transactions.
、、刃向、錐聾葬誌萎畠−1﹂酪葬鯛霧襲襲蛎
OO竃くOU−一﹁−向ωω＞］≦勺［向ω同〇一﹁−O］4
OO竃ζ⊂2−O＞一﹁−O之ω向〇一﹃−O之
竃＞O庄−2向宛くω向O↓−OZ
一≦あO丙−［＞Z向OGωω向O↓−OZ＃H
犀＞−−カO＞Uω向O↓−O乞
−−・；−・・−−−−−−−− −−−−−・ 批ω
Nihon Keieishi K釦kyμjo，op．〃．，p．201
Source
R
R
ADMlNlSTRAT1ON DEPARTMENT
OPERAT10NAL DEPARTMENT
−−−−−−−−−− −− ＃N
−≦丙↓＞−ωω向O↓−02
00＞［ω向O↓HO乞
OOH↓02ω向O弓−O之
＞OOO⊂2↓−之Ωω向O↓−OZ
くO丙OωO穴＞団宛＞ZO＝
ω＞勺勺O勾○−沌＞ZO︸
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↓
531b14．，pp．212＿213
−≦OZ向くOO−−向O↓−Z①ω向OH−02
カ向O向−く向俸O向−−く向カ■
勾＞H−宛o＞−︺H≦丙↓U向﹃＞宛↓く向z↓
■O宍O曽＞一≦＞籟用＞ZO曽
is shown in Figure 3.
THE ORGANIzATI0NAL CHART0正MlTsUI BUssAN（1905）
FIGURE3
[December
ElTOTSUBASHHOURNAL OF COMM■RC田AND MANAG田MENT
90
PRESIDENT
the whole company and exchange information.53 Thus Mitsui Bussan controlled and co-
1985] THE EMERGENCE OF THE PROTOTYPE OF ENTERPRISE GROUP CAPITALISM, THE CASE OF MITSUl
91
IV. The Relationship between Mitsui Bussan and Its Affl
liates
- 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 beginning 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 mentioned 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 developed along with the slow diffusion of cement into Japan. But as Asano Cement Company, 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 Bussan 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) subscription. 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, Yamaguchi, 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
in losses (their operating loss was about
190,000
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 remedies. 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 follows :61
1) Onoda Cement consign all products to Mitsui Bussan, both for domestic and international 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 informed 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 production 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
93
FIGURE 4. THE ORGANIZATIONAL CHART OF ONODA CEMENT
AND MITSUI BUSSAN (1909)
Onoda Ceme*t M*tsu* Bussan
OSAKA BRAN. CH
BoaTd of
Dlrectors
Penodical
Meeting
Cement Dept
lvlanagmg
Dlrector
Chief Eng]neer
Correspondent
Sales
Stonng Accountlng
General productlon
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 correspondent 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 accepted 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
[December
TABLE 1 5. TOTAL OUTPUT AND SALES OF ONODA CEMENT
Year
Output
Sales
Domestic (
1897
1898
1 3 ,447
14,792
l 4,982
1901
14,760
15,145
23,141
25,633
1 902
3 1 ,446
14,428
14,837
14,395
20,758
19,610
22,808
1 903
30,069
34,434
34,080
35,437
33,926
54,648
58,582
1 899
l 900
1 904
1905
1906
1907
1908
1 909
Source :
14,661
22,849
23,654
31,815
27,782
32,924
36,695
37,354
34,298
52,961
61,430
(97.5)
(99.0)
(98.2)
(90.8)
(82.9)
(72.5)
12,810 (46. 1)
23,875
25,165
20,173
23,447
(72.5)
(71.7)
(54.0)
(68.4)
37,936 (71 .6)
42,467 (72.5)
)
(ton)
Export O(;)
363
147
266
2,091
(2.5)
(1.0)
(1.8)
(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
10,851
15,023
18,963
(46.0)
(31.6)
(28.4)
(27.5)
The Statistics of Onoda Cement (Onoda's Archives).
Onoda information about domestic and foreign biddings, market conditions, and the sales
and commission amounts from each branch.63
(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 depended 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 (19041905).
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 Manchuria. 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 government, 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 securities 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 administration 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 investigation, 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 mediumsized (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 established ones (Mitsui, Mitsubishi, Sumitomo, and Yasuda). While the medium-sized and the
late-coming zaibatsu aggressively expanded their business to catch up with Mitsui & Mitsubishi, the two giants pursued a steady business strategy accompanied by a modest development. In the serious depression following this boom, however, the medium-sized and lateconung 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 mediumsized 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 unemployment 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 reluctarlt 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, Sumitomo) and Mitsui Bussan, anticipating the re-embargo on the export of gold and the consequent 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 development 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 subsidiary, 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.
98 HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December
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 govemment 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)
Sep. 1933
Oji Paper
Oji Paper
Oji Paper
1 1 5,000
9,485,000
16,000
10,000
6,000
1 ,304,000
147,000
12,201,300
Hokkaido Coal & Ship
Jan. 1934
Feb. 1934
Mitsui Bank
Tokyo Electric Power
Onoda Cement
Taiwan Electric Power
Kita Karafuto
Hokkaido Coal & Ship
Hokkaido Coal & Ship
Total
Source :
Note:
l ,040,000
372,300
5 ,OOO
407,500
3 1 ,415
1 ,027,270
54,000
6,925
l,OOO
90,000
10,000
2,835,000
305,867
20,625
3,500,000
700,000
198,840
8,796,262
345,840
20,997,562
Buyer
Syndicate of Life Insurance firms*
Mitsui Life Insurance
Hisakichi Maeyama
Mitsui Life Insurance
Mitsui Life Insurance
Yamaichi Stock Co.
Mitsui Bussan
Mitsui Trust Bank
Mitsui Trust Bank
Syndicate of Life Insurance firms
Mitsui Life Insurance
Hiroshi Matsumoto, op. cit., p. 245.
this syndicate was consisted of Showa, Aikoku Chiyoda Yasuda, Teikoku, and Dai-ichi Life
Insurance Companies.
,
'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)
Firms in
Afiiliate
firms
193lsh-1937fh
1937sh-1940fb
1,233
l,506
Total
2,739
Manchuria Mitsui
& China Mining
Mitsui
Bussan
Others
Total
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
19.1 980 6.8 7965 55 6 2243 15.7 398 2.8 14,325 1000
25.2
16,0
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.
HrroTSUBASHI JOURNAL OF COMMERCE AND MANAGEMENT [December
lOO
TABLE 1 8. SALES OF MITSUI S
Sales Amount of Affliates' Stocks
Total Amount
I 1933-1934
II 1936-1936
lll 1937-1938
IV 1938-1939
(f)
20,997,562
22,269,592
14,678,950
5,744,823
Tosh in
Storehouse
Sold to Direct Sub.
(Stock) (f)
(f)
(Stock)
9,990,000
123,400
45 1 ,O 1 8 9,990,000
(49.0 )
123,400
(Stock)
99,425
198,676
l08,750
345,840 5,945,292
302,04D 12,665,492
178,750 8,859,100
93,363 2,688,698
44, 1 67
V 1939-1940
63,690,927
919,993 30,158,582
(47.4 )
Source: Hiroshi Matsumoto, op. cit., pp. 26 265.
TABLE 1 9. EXPENSE STRUCTURE
Personnel
Tran s-
Communi- Consumer Miscel- Interest
portation cation
Expense laneous Donations Expense
1933 1,381,564 1,384,315 14 719 1 5,150
32,621 1,240,974 83,852
32,999 1,633,788 43,947
35,754 1,345,771 38,570
33,350
Expense Taxes
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
38,337 763,784 4,010,934
42,669
42,942
43,989
46,936
41,704
47,060
674,669 795,316
671,602 626,01 8
532,882 511,710
752,521 646,917
620,050 467,335
736,505 428,971
32,062
25,689
24,980
32,730
37,595
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
101
STOCKHOLDlNGS (1 933-1 940)
Mitsui
Nitto
Takushoku
(f)
Total
Mining
(Stock) (f)
(Stock)
891,000 19,800
27,720,400
891,000 27,720,400
19,800
(f)
ro,997,562
22,269,592
25,559,950
(Stock)
345,840
3 02,040
5,744,823
27,720,400
321,950
93,363
649,260
649,260 102,292,327
1 ,712,453
649,2co
OF MITSUI GOMEI (1933-1940)
De precia
Real
Agri DepreciaDeprecia-tion
- StockEstate tion
Business
tion(3)
losses
Expense (1)
(2)
Others
Total
Expense
2,619
284,669 276,367 25 1 ,471 320,077 12,9071,314
5,300,313
(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
3,675
631,412 305,040 272,633 298,713 308,339 101,036
10,311,778
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 89,000
148,5216,327
6,355,917
6,815 8,423,085
461,636 247,983 239,966 218,407 2,888,288
- 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
50,265
58,861
65,214
60,582
343,130
579,533
415,641
398,627
415,179
482,143 4,603 6,990,610
502,960 4,931 9,498,480
522,477 4,767 10,111,192
506,329 4,092 9,683,917
500,591 3,779 11,845,365
25,250
6,872
76,642 400,530 565,42S 40,400 14,370,739
(5)329,759
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 purchased 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, because 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 enforcement 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 shareholding. 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 management. In this process, in order to control and coordinate the diversified and independent
subsidiaries, the interlocking directorate system was developed instead of the central corporate office. In order to control and coordinate the capital resources, Mitsui Gomei as
the holding company was established. The interlocking directorate system meant horizontal 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 completely 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 demands 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 interlocking 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 enterprise 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 Management 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 Mitsubishi). 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.

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