Yes! Mitsubishi also has high resources/energy exposure at 50-60%. Very much similar to Trafigura type of trading, except the customer base and supply chains are hyper-localized to the Japanese market.
Just my own curious thought. When the majority of the market in the world is cutting out the middle person, it is interesting to see that the shoshas actually thrive. Will appearance of shopify or any other e-commerce business actually disrupt their business? Culture certainly explain part of it but it just doesn't make financial sense for business to rely on others to expand internationally especially for bigger business. They should be companies in Japan to build a platform or something to capture this value. (note: i am not familiar with Japan and looking to learn more)
Definitely a valid question. Short answer though is I'm not too worried about that and for a few reasons. Much of the trading is B2B and not consumer facing, so internet (you mentioned Shopify) has lesser role here. But I think the broader point is that disintermediation has been an issue since 40 years ago, it has already played out, and what's left today is largely things that have proved to be hard to disintermediate. For example, smaller companies that simply aren't going to hire their own direct sales force to sell their own products because they lack the scale. Or things like LNG where you require specialized logistics and storage. Or businesses where Shoshas play an organizing function (big infrastructure projects) bringing together many firms.
Very informative! In part 2 I'm hoping to learn how cyclical these companies are, and historically how their P/E (or related measure) has varied through a cycle.
I would note the 'main' bank element is actually what differentiates the Japanese set up vs Koreans in terms of zaibatsu and chaebol
Korean chaebol were not allowed to own banks directly.
There is also the case of Toyota Tsusho which is much closer to the trading house model in Korea in it facilitating a core manufacturing concern and selling products overseas (i.e. TT is probably closer to the old school model than the bigger names)
An interesting aside - NYK is the 'original' Mitsubishi co (the Iwasaki's used this to shuttle supplies to the govt when they annexed Taiwan) although does not bear the Mitsubishi name.
Actually, I really liked your observation on how trading houses basically handled the working capital side of group companies while the bank did the long term asset financing.
Nobody has ever put it like that to me before but I thought it was a very good way of looking at things
Very interesting. Great piece. I’d also add that Berkshire likely paid for its purchases with near zero cost Japanese yen-denominated debt.
Thanks for the great writte-up! Would you ssay Mitsui is the closest to a Glencore/Trafigura type of trading?
Yes! Mitsubishi also has high resources/energy exposure at 50-60%. Very much similar to Trafigura type of trading, except the customer base and supply chains are hyper-localized to the Japanese market.
Just my own curious thought. When the majority of the market in the world is cutting out the middle person, it is interesting to see that the shoshas actually thrive. Will appearance of shopify or any other e-commerce business actually disrupt their business? Culture certainly explain part of it but it just doesn't make financial sense for business to rely on others to expand internationally especially for bigger business. They should be companies in Japan to build a platform or something to capture this value. (note: i am not familiar with Japan and looking to learn more)
Definitely a valid question. Short answer though is I'm not too worried about that and for a few reasons. Much of the trading is B2B and not consumer facing, so internet (you mentioned Shopify) has lesser role here. But I think the broader point is that disintermediation has been an issue since 40 years ago, it has already played out, and what's left today is largely things that have proved to be hard to disintermediate. For example, smaller companies that simply aren't going to hire their own direct sales force to sell their own products because they lack the scale. Or things like LNG where you require specialized logistics and storage. Or businesses where Shoshas play an organizing function (big infrastructure projects) bringing together many firms.
Very informative! In part 2 I'm hoping to learn how cyclical these companies are, and historically how their P/E (or related measure) has varied through a cycle.
Weekend reading sorted 😍
Very good write-up
I would note the 'main' bank element is actually what differentiates the Japanese set up vs Koreans in terms of zaibatsu and chaebol
Korean chaebol were not allowed to own banks directly.
There is also the case of Toyota Tsusho which is much closer to the trading house model in Korea in it facilitating a core manufacturing concern and selling products overseas (i.e. TT is probably closer to the old school model than the bigger names)
An interesting aside - NYK is the 'original' Mitsubishi co (the Iwasaki's used this to shuttle supplies to the govt when they annexed Taiwan) although does not bear the Mitsubishi name.
Your comment on the Korean chaebols is super on point. Actually, these are all excellent points! I learned something new regarding NYK too. Thank you!
Actually, I really liked your observation on how trading houses basically handled the working capital side of group companies while the bank did the long term asset financing.
Nobody has ever put it like that to me before but I thought it was a very good way of looking at things
I really enjoy this succinct reading. I wish I could travel Japan with you Deng.
This has been a great no-brainers investment for Buffett and Berkshire when the right analysis was combined with prudent low cost leverage.
Nice FCF yield.